China Resources Quarterly - MacroBusiness · Platinum and Palladium 63 Mineral sands 64 ... industry trends. A special section on the Chinese equity market and its relationship to

China Resources Quarterly Southern w

inter ~ N

orthern summ

er 2015

China Resources QuarterlySouthern winter ~ Northern summer 2015

China Resources Quarterly

Southern winter ~ Northern summer 2015

ii China Resources Quarterly • Southern winter ~ Northern summer

© Commonwealth of Australia 2015

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ISSN 978-1-921516-05-4 [Print]

ISSN 978-1-921516-07-8 [PDF]

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced or altered by any process without prior written permission from the Australian Government. Requests and inquiries concerning reproduction and rights should be addressed to:

Department of Industry and ScienceGPO Box 9839Canberra ACT 2601

or by emailing [email protected]

China Resources Quarterly • Southern winter ~ Northern summer iii

AcknowledgementsThis publication was jointly undertaken by the Westpac Institutional Bank, a division of the Westpac Group, and the Australian Government Department of Industry and Science. The relationship is non–commercial. The report was previously published under the title of the Westpac–BREE China Resources Quarterly.

Editors

Westpac: Huw McKay. Department of Industry and Science: Kate Penney and John Barber.

Design and production

Julie Doel

Cover image

Shutterstock

This report was finalised on 10 August 2015.

iv China Resources Quarterly • Southern winter ~ Northern summer

Acknowledgements iii

Contents iv

Acronyms and abbreviations v

Foreward vi

Executive summary 1

Recent developments in the Chinese economy

2

General macroeconomic indicators 10

Resource related macroeconomic indicators

12

China’s equity market & the real economy

14

Steel 18

Iron ore 20

Metallurgical coal 24

Energy overview 26

Thermal coal 28

Oil 31

Gas 34

Uranium 36

Gold 39

Silver 41

Copper 42

Aluminium 45

Alumina 47

Bauxite 48

Nickel 50

Zinc 53

Lead 56

Tin 58

Molybdenum 59

Tungsten 60

Cobalt 61

Antimony 62

Platinum and Palladium 63

Mineral sands 64

Rare earth oxides 65

Manganese and Cadium 66

Diamonds and Magnesium 67

Mineral and energy import summary 68

Provincial distribution of energy and resource related activity

Electricity output & consumption 70

Coal and gas 71

Ferrous metals 72

Alumina and aluminium 73

Copper and gold 74

Nickel and zinc 75

Contents

China Resources Quarterly • Southern winter ~ Northern summer v

Acronyms and abbreviations

ABS Australian Bureau of Statistics

ASEAN Association of Southeast Asian Nations

AUD, $A Australian dollar

bcm billion cubic metres

CEIC Chinese Economic Information Company

CFR Cost including freight

CNY, CNH Chinese yuan (onshore & offshore)

cm cubic metres

dltu dry long tonne unit

FDI foreign direct investment

FOB free on board

FX Foreign exchange

G3 United States, Europe and Japan

GDP gross domestic product

GFC global financial crisis

GFCF gross fixed capital formation

GCF gross capital formation

IEA International Energy Agency

IMF International Monetary Fund

koe, mtoe kilogram of oil equivalent, million tonnes of oil equivalent

kgpp kilograms per person

kWh kilowatt hour

LNG liquefied natural gas

Mt million tonnes

na not available

NAR net as received

NIEs Newly Industrialised Economies (Singapore, Taiwan, Hong Kong, South Korea)

ODI outward direct investment

OECD Organisation for Economic Cooperation and Development

OPEC Organisation of Petroleum Exporting Countries

PMI Purchasing Managers Index

PPP purchasing–power parity

ppt percentage point

RMB Chinese Renminbi

SHIBOR Shanghai Interbank Offered Rate

sqkm square kilometres

USD, US$ United States dollar

Growth rate conventions and abbreviations.

“Year–ended growth”, abbreviated %yr, is the level of an indicator in a single period (a month or quarter) versus the corresponding period in the prior year, expressed as a percentage.

The term “smoothed growth” should be understood to represent a 3 month moving average (3mma) of the year– ended growth rate.

“Year–to–date growth”, abbreviated %ytd, is the accumulated level of an indicator at a point in the calendar year (for example year–to–June, year–to–Sep) versus the corresponding point in the prior year, expressed as a percentage.

“Annual average growth”, abbreviated %ann, is the level of an indicator over four quarters, versus the previous four quarter period, expressed as a percentage.

“Month–on–month and quarter–on–quarter growth”, abbreviated %mth or %qtr, is the level of an indicator in one period, versus the immediately prior period, expressed as a percentage.

“Annualised growth or annualised rate”, is the change in an indicator in a single period grossed up to a year, expressed as a percentage. If seasonally adjusted, this may be rendered as %saar.

vi China Resources Quarterly • Southern winter ~ Northern summer

ForewordWelcome to the Southern winter ~ Northern summer edition of the China Resources Quarterly – hereafter the CRQ. The CRQ is a collaborative research venture between the Westpac Institutional Bank (hereafter Westpac) and the Australian Government Department of Industry and Science.

The CRQ is the primary reference point for public and private sector decision makers seeking to understand developments in the Chinese economy, with special reference to its demand for resources.

This edition has been compiled against an economic backdrop that, on balance, is moderately better than that described in its predecessor. Even so, China’s domestic demand profile remains fragile and nominal activity growth is extremely subdued vis-a-vis the double digit percentage growth rates that were de rigeur for much of the last decade.

In the resources sphere, the intersection of increasing Australian supply potential and the fact that it is the most resource and energy intensive parts of the Chinese economy that have slowed the most, has produced steep declines in the prices of a number of important commodities.

With China’s development model in the midst of a major structural inflection point, and Australia’s own commodity cycle having shifted decisively into the supply phase, it is more vital than ever to trade in fact rather than rumour. The CRQ aims to do its part in this regard by making available rigorous and empirically grounded analysis of macroeconomic and resource industry trends. A special section on the Chinese equity market and its relationship to the real economy is included in this edition, echoing this spirit.

China is now the world’s largest national economy in purchasing power parity (internationally comparable volume) terms and the largest producer of industrial value added, however measured. And it is now a free-trade agreement partner of Australia. These observations underscore the value of continuing to deepen our collective understanding of the ever–evolving Chinese economy.

Bill Evans Mark Cully

Chief Economist Chief Economist

Westpac Department of Industry & Science

China Resources Quarterly • Southern winter ~ Northern summer 1

Executive summary

The Chinese economy grew at a rate below its potential in the first half of 2015. The general impression left by the flow of data since the previous edition of the CRQ has been of modest improvement off a low base. Aggregate demand stabilized in the June quarter, following on from a weak second half of 2014 that spilled over into 2015Q1. The principal sources of weakness remain building activity and heavy industry, with services consumption and infrastructure capex providing partial offsets. Exports, which had been a support for growth in 2014, have slowed.

Growth in heavy industrial capacity and in mining investment both slowed significantly in the first half of 2015. Coal mining and ferrous metals smelting are among the weakest segments. Outlays on utilities capex have continued to grow at a healthy pace. Investment in transport infrastructure continues to run at a relatively high level. Public sector capex has stabilized in 2015 to date having experienced steep declines last year, but overall the support for demand from this quarter has been extremely modest.

Real estate construction activity remains weak, but housing sales turnover has begun to firm on the back of policy support. Dwelling prices are rising again in the wealthy coastal metropoli and in a meaningful number of smaller cities. However, the supply imbalance in lower tier jurisdictions remains large, which will delay any recovery in building activity until well into next year.

The heavy industrial sector continues to struggle. The proportion of industrial firms making losses remains historically high; the demand for basic inputs consumed by construction has deteriorated; as a result excess capacity is looking increasingly pronounced in some sub-sectors; and producer prices continue to decline, as they have done since early 2012.

China’s exports have slowed in recent times, with the deterioration evident across the G3, in intra–Asian trade and in shipments to extra-regional emerging markets. Chinese exporters gained global market share in 2014, despite the considerable appreciation of the real exchange rate, but its shipments are presently undershooting the aggregate growth in international trade.

The Chinese equity market dominated the news cycle in late June and early July. In recognition of this, we have included a supplementary discussion on the macroeconomic import of the dramatic volatility in stocks.

Demand for imported raw materials has been reasonable (albeit volatile) in volume terms, but the overall import bill has declined due to steep falls in metals, energy and certain food prices. China and Australia signed a Free Trade Agreement during the inter-CRQ period. References to the commodity specific elements of the FTA are sprinkled through the report.

Commodity prices exhibited considerable softness during the first half of 2015, following on from the inglorious collapse of 2014. Lower prices have been driven largely by the increase in supply, although as noted above and throughout the CRQ, the growth in demand has, in the main, been considerably lower than the norms established in the 2000s.

The global supply trend has been exemplified by Australia’s bulk commodity export volumes, which have continued to increase despite substantially lower prices. Even so, as the period of time that commodity prices spend around their current levels extends, the more pressure will be brought to bear on those mines, in Australia, China and elsewhere, that are operating in the upper quartile of their respective industry cost curves.

2 China Resources Quarterly • Southern winter ~ Northern summer

The Chinese economy grew at a rate below its potential in the first half of 2015. The general impression left by the flow of data since the previous edition of the CRQ has been of modest improvement off a low base. Aggregate demand stabilized in the June quarter, following on from a weak second half of 2014 that spilled over into 2015Q1. The principal sources of weakness remain building activity and heavy industry, with services consumption and infrastructure capex providing partial offsets. Exports, which had been a support for growth in 2014, have slowed of late.

Real GDP expanded by 7.0% year–on–year in the June quarter alone. That compares to 7.0% in Q1, 7.3% in the December quarter; 7.4% for 2014 as a whole and the 7.7% outcome for 2013. Nominal GDP, which has historically exhibited significantly more cyclical amplitude than the volume measure, picked up to 7.1% in Q2, from the very weak 5.8% of the March quarter. With the exception of the GFC period, the recent phase has produced the slowest nominal growth since the deflationary late 1990s. The change in the GDP deflator – the statistician’s estimate of economy-wide prices – was +0.1% year–ended in Q2, up from –1.1% in Q4.

Looking at the breakdown of real activity from the production side of the accounts, on a broad sectoral basis, secondary output slowed 0.3ppts to 6.1%ytd while tertiary activity was 0.5ppts higher at 8.4%. As for the estimated quarterly contributions on an expenditure basis, they were: 4.2ppts from final consumption (4.0ppts in the corresponding quarter of 2014); 2.5ppts from investment (versus 3.6ppts 2014Q2); and net exports at +0.3ppts (–0.2ppts).

Real urban fixed investment growth (including land purchases, so not directly comparable to the national accounts measure) fell away by 2.6ppts in Q2. In terms of the sectoral composition of investment activity, on a nominal basis, growth in heavy industrial capacity and the extractive industries remains weak. Growth in utilities capex has picked up a little from an already high level, while transport fell back modestly. Real estate was again a drag. Housing and non–residential building are still in the doldrums (see page 4).

State–owned enterprises contributed 32.8% of the growth in fixed investment in 2015Q2, their highest share since 2010.

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Nominal GDP: total & by broad sector

Various elements of China’s national accounts

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Sources: CEIC, Westpac Economics.Dec-13 GDP deflator interpolated.

The development of the investment cycle

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Sources: CEIC, Westpac Economics

Figure 1: Nominal GDP: total & broad sectors

Figure 2: Various elements of the national accounts

Figure 3: The investment cycle: a sectoral view

Recent developments in the Chinese economy


Rather than relying on GDP alone to assess the state of the Chinese economy, it is prudent to complement the national accounts with a range of alternative indicators that also correlate with overall activity. Doing so provides a richer and more complete picture of macroeconomic trends. For the real economy (as opposed to the monetary–financial sphere, which will be dealt with subsequently), these data fall into three broad categories. They are (1) nationwide surveys (2) economy-wide measures of intermediate input, and (3) bellwether industry sectors that map the broader economic cycle. Additionally, balance sheet information from government and business contain relevant insights on underlying growth.

In the previous edition of CRQ we argued that a balanced reading of the alternative indicators suggested that aggregate demand growth was running somewhere between the real (7.0%) and nominal (5.8%) estimates of GDP growth. In Q2, these two measures have converged on 7%, which feels perhaps a tick high, but no more than that.

The People’s Bank of China’s corporate survey is the most valuable resource in category (1). The largest firms in the country gauge that business conditions deteriorated in the first half of 2015, leaving them far below average levels. The details of the Q2 survey, however, argue that both domestic and external demand conditions improved vis-a-vis Q1.

In category (2), alongside the traditional proxy of electricity output, logistics volumes provide additional insight. At the end of Q2 the smoothed year–ended growth rate of these proxies was 3.9% (electricity); 1.7% (terrestrial freight) and 1.6% (aquatic freight). Note that these proxies work best for heavy industry and exports, twin pillars of the ‘old’ model. They do not necessarily capture trends in services, which are now a major source of growth.

In category (3), the real estate industry – especially its construction arm – is the bellwether of choice. It is considered in detail on the following page. Regarding balance sheets, the year–ended growth rate (smoothed) of central government revenues was 7.5% in Q2, against outlays running at 7.1%. The profits of industrial firms (manufacturing, mining & utilities) declined in year-ended terms in the first half, but margins were showing signs of firming at the end of Q2.

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25Nominal GDP growth (lhs)Business situation* (rhs)Domestic orders* (rhs)

Sources: CEIC, Westpac Economics. * 5000 enterprise survey. Dec-13 nominal GDP growth interpolated.

% long run average%yr

China: business conditions, orders & GDP

Aggregate activity proxies: volume

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Sources: CEIC, Westpac

Imports and construction

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Sources: CEIC, Westpac.Data smoothed.

Figure 4: Business conditions, orders & GDP

Figure 5: Selected aggregate activity proxies

Figure 6: Selected aggregate activity proxies


The real estate sectorReal estate represents around one quarter of nominal urban fixed investment. Real estate investment itself is split roughly 70/30 between residential and non–residential. State–owned enterprises represent around 14% of the total.

In the previous edition of the CRQ we noted that the real estate slowdown directly accounted for half of the 4.7ppt deceleration in investment growth in 2014. Real estate’s direct contribution to the year-to-June 2015 slowdown of 5.9ppts is around two-fifths.

The volume of housing sales declined heavily across all regions in 2014 and early 2015, but a clear turnaround has now emerged in the secondary (established) market in Tier-1 cities and in a number of smaller locations. The market for new dwellings has lagged behind, reflecting the inventory overhang, but even there some healing is evident. The continued presence of excess stock is driving a major wedge between the raw growth rate of sales (+16%yr) and starts (–15%yr), and will continue to serve as a headwind for price appreciation in the new market. Even so, with sales turnover on the up and the rate of new completions now declining visibly, the cyclical fundamentals of the market are much improved from where they began the year.

In the background, we note that the renewed policy emphasis on urban renewal and public housing has not as yet revived activity in the under–the–radar off–market segment. Off–market construction accounts for around a third of the urban total. It has declined consistently since April 2014 leaving a large hole in construction activity. We await a consolidation in this area with fiscal policy turning more expansionary and state-owned enterprises awakening from their recent slumber.

Given the policy support now in place (the Sept 2014 package; multiple rate cuts; maximum mortgage loan-to-value ratio increases, cessation of most buying restrictions) the shift in sentiment towards real estate has been slow and timid relative to previous instances of policy easing. The weak policy multiplier, especially vis-a-vis the rebooting of construction activity, highlights that there are structural aspects to the current slowdown, over and above the cyclical-policy nexus.

70 city house prices: net balance m/m chg

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Housing sales, completions & land prices

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Sources: CEIC, Westpac. Aug-2006 = 100.Underlying activity data in sqm.Land price is a spliced series of 100 and 70 city series.

Residential sales & starts: volume

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Sources: CEIC, Westpac.Underlying data in sqm.3mma of the year-ended growth rate.

Figure 8: Completions, sales & land prices

Figure 9: Housing sales and starts: volumes

Figure 7: 70 city house prices: m/m chg net balance


International tradeGross value–added attributable to the export sector accounts for approximately 17% of China’s GDP. So while exports are secondary in importance to the domestic construction cycle as a source of economic growth (and ultimately resource demand) they are far from irrelevant. Indeed, given the large amplitude of historical swings in export growth, at certain times external demand can outweigh the domestic story.

Net exports were a support for real GDP growth in the first half of 2015, but they fell back from a +1.3ppts contribution to year–to-date growth in 2015Q1, to just +0.3ppts in Q2. A weaker export performance was the main driver of this lower contribution, as imports are still declining in both value and volume terms. As of Q2, exports to the G3 (–1.0%yr) were performing somewhat better than China’s overall global shipments (–2.2%). Intra–Asian sales are running at close to the global rate of contraction, while shipments to extra–regional emerging markets have decelerated sharply.

The business surveys describe an external demand environment that is distinctly underwhelming. The “new export orders” sub–index in the two most watched manufacturing surveys (where 50 signifies the dividing line between expansion and decline) averaged just 48.4 in the four months to July 2015. Furthermore, the monthly observations deteriorated between CRQs, indicating unfavourable momentum. The 48.4 average compares to 51.0 in the second half of 2014 and 49.0 in the first four months of 2015.

Imports of machinery and transport equipment fell by 6.3%yr in Q2, having contracted by 3.1% in the previous quarter. They increased by 3.7% in 2014Q2. These subdued growth rates reflect the state of the IT product cycle, excess capacity in the onshore machinery sector, weak auto sales amidst mild market share losses for imported vehicles and subdued domestic equipment outlays.

The growth of food import values rebounded to +11.1%yr in June, which brought a price driven eight–month run of negative year–ended growth outcomes to an end. The value of imports from commodity producing countries continues to decline heavily, slashing the overall import bill. Imports from the G3 and from Asia ex Japan are also declining.

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PBOC foreign orders

Caixin new export orders

NBS new export ordersSources: CEIC, Markit

Export orders: survey measures

Figure 10: Trade flows by source and destination

Figure 11: Export orders: survey measures

Figure 12: Imports – total & key primary products

Chinese trade: uneven outcomes

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The monetary & financial sphereThe monetary policy stance has been characterized by a basic tightening posture since 2011, related to the unwinding of the stimulus era legacy; but this has been periodically interrupted by a cyclical need to underpin growth and/or accommodate smooth refinancing. The annual flow of credit to GDP peaked at 41% in late 2009; hit a local trough of 26% of GDP in early 2012; rebounded to 34% of GDP in early 2013; and has hit another low south of 23% of GDP as of 2015Q2. While traditional bank loans were a major contributor to the stimulus package, much of the cyclical amplitude since has been related to shadow finance, which is dominated by off-balance sheet activity of the banks themselves (figure 13).

The previous edition of the CRQ argued that the People’s Bank’s reluctance to ease aggressively, in a world where few central banks are exercising such discipline, has led to aggregate financial conditions becoming inappropriately restrictive (figure 14). The real exchange rate has appreciated sharply and real interest rates are still above average, despite muliple cuts in the one-year benchmark lending rate. Furthermore, with FX reserves declining in each of the last four quarters, the growth in broad money, and the monetary authority’s own balance sheet, has also slowed. The diminished growth rate of the central bank’s balance sheet reflects both the impact of net capital outflows (that manifest as declining FX reserves) and the relative passivity of its domestic monetary activities in the cycle to date. Given the absence of inflationary pressures, financial conditions ought to be less restrictive. We await further initiatives in pursuit of this objective.

It is, however, clear that the price and availability of finance are not the main impediments to stronger credit growth. The main culprit is the fact that animal spirits are at a low ebb, which leads to fewer new projects being pursued, which in turn produces low demand for credit (figure 15). On a sectoral basis, the secular slowdown in credit-intensive heavy industrial investment and the parlous state of building activity are the major proximate causes of diminished demand for loans.

Finally, the equity market was in a bull-run at the time of the last CRQ. Few readers will be unaware of what has happened since. Reflecting the elevated degree of interest in the stock market, an extended discussion has been included on pages 14-17.

Financial conditions in China

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Figure 14: Financial conditions in China

Figure 15: Banker confidence & loan demand

Figure 13: Flow of credit by type, % of GDPTotal credit supply – new flows, % of GDP

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4 quarter sum of new flows.

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External finance & the currencyThe bilateral exchange rate with the US dollar has appreciated by a cumulative 33% since the peg exit in June 2005. The real effective exchange rate, which measures the nominal trade weighted move in the CNY while also accounting for relative inflation, has appreciated by 53% over the same time frame. The real effective CNY appreciated by 14.0% over the year to June 2015, while USD/CNY is close to unchanged over that timeframe.

The above figures highlight that the movement in the USD/CNY rate is a poor proxy for the shift in Chinese competitiveness over the last year. The surge in the real effective CNY, which is a joint function of the flat USD/CNY and the steep appreciation of the US dollar against a wide range of both major & emerging market currencies, looks inappropriate given China’s weak cyclical position.

In a world where the central banks administering the four SDR currencies have all expanded their balance sheets considerably since the GFC, the balance sheet of the People’s Bank has contracted by almost 12% of GDP since early 2011, albeit from a much higher level. Little wonder then that the exchange rate has appreciated substantially over this period, despite the major contraction in China’s current account surplus from above 10% of GDP in 2007 to around 2-3% of GDP in recent years.

In the last four quarters, the capital flow situation boiled down to huge trade surpluses being more than offset by considerable net outflows on the financial account. Foreign exchange reserves decreased by US$150bn in the second half of 2014, (–$US106bn in Q3 and –$US45bn in Q4) and they fell a further $US149bn in 2015H1 (–$US113bn in Q1 and –$US36bn in Q2) . We note that as RMB internationalisation proceeds, and the People’s Bank participates in fewer FX transactions, private cross border flows are increasing, with bank–related flows an increasingly important channel for surplus recycling, alongside outward direct investment and a modest but rapidly growing trickle of portfolio flows. China now produces very detailed quarterly balance of payments data, but this report is not yet available for Q2. We can observe though that foreign currency deposits held at Chinese banks increased by $US88bn over the year to June but they fell by $US14bn in Q2 alone.

The path of the Chinese exchange rate

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Figure 16: The exchange rate: broad & bilateral

Figure 17: Relative central bank balance sheets

Figure 18: FX reserves & net capital flows by type


Heavy industryAs heavy industrial output (and investment in new capacity) is essentially a measure of ‘derived demand’ from other sectors, it ought to behave as a reactive variable in a medium term forecasting framework. However, when the time horizon is shorter, swings in heavy industrial activity can be responsible for much of the volatility observed in the aggregate data. Furthermore, with excess capacity now plaguing a range of basic materials, extractive and machinery sectors, capex is now forcibly decoupling - on the weaker side - from movements in aggregate demand.

As the major direct consumer of raw materials and a key provider of intermediate goods for use elsewhere in the supply chain, an understanding of how these aforementioned forces intersect in the heavy industrial complex is vital to a full comprehension of China’s resource demand.

Total industrial value–added (IVA) expanded at a smoothed year–ended rate of 6.2% as of June. That compares to 7.6% at the end of 2014, 8.9% as of June ‘14, and 10.0% at the end of 2013. The growth rate of electricity output at each of those points was 3.9% (Jun ‘15) 2.7% (Dec ‘14); 7.2% (June ‘14); and 10.1% (Dec ’13). The greater amplitude of the growth rates of power production are consistent with the fluctuations in the heavy industrial subset of the wider secondary sector. However, phases where heavy industrial output grows more swiftly than total IVA (figure 19) have become increasingly rare in recent years, just as total IVA out-growing GDP is becoming a rarity (figure 21). Those twin observations are indicative of the structural challenges - slower end-demand growth and excess capacity to service it - confronting certain sub-sectors. The rising proportion of firms now making losses, the well-entrenched deflationary pulse in producer prices and the ongoing slowdown in capex (figure 20) highlight the same basic issues. The slowdown in heavy industrial capex in the year to Jun ‘15 explained one-fifth of the economy-wide investment deceleration.

In downstream manufacturing, capital goods have been falling in price since late 2011; onshore sales of ‘yellow goods’ are significantly beneath the levels of a year ago; while domestic-made auto sales declined in June for the first time since early 2012.

Industrial production: core & headline

-10

0

10

20

30

40

50

-10

0

10

20

30

40

50

Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15

Core heavy industry*

Headline industrial value-added

%yr %yrSources: CEIC, Westpac. 3mma.* Includes interpolated levels for Jan-Feb for non-energy components.

China: heavy industrial investment & the PPI

-9

-6

-3

0

3

6

9

12

15

0

7

14

21

28

35

42

49

56


%yr%yr 3mma

Heavy industrial capex (lhs)

Producer price index (rhs)


10

20

30

40

50

10

20

30

40

50

5 10 15 20 25

GDP per person, ‘000s.

Sources: CEIC, Japanese Statistician, Westpac. * Manufacturing & mining, nominal.

Industrial production*, % GDP

China1978 to 2014

South Korea1955 to 2014

Japan1955 to 1998

Secondary industry share & living standards

Figure 20: Heavy industry capex & the PPI

Figure 21: Industry share & living standards

Figure 19: Core & headline industrial production


The household sectorThe major reference point for the CRQ’s analysis of the Chinese household sector is the Westpac MNI China Consumer Sentiment Survey. The most prominent themes in late 2014 were deepening concerns with respect to job security, family finances and the housing market. These inter–related themes remain a source of anxiety in an absolute sense as of mid 2015, but the degree of pessimism expressed in relation to family finances and housing has lessened visibly.

Counter to that more positive observation, perceptions of job security have made virtually no net progress in the first seven months of this year. Further, more consumers have been nominating ‘future loss of income or employment’ as their main motivation for saving of late. Collectively, that implies there has been little cyclical improvement in labour market conditions since late last year, despite the gains made in other areas of the survey. We attribute the re-emergence of such concerns to the poor performance of the labour-intensive export sector in recent months. So, while demographic factors are preventing an untoward rise in the rate of unemployment, in absolute terms job security, and its concomitant, the degree of chutzpah that workers carry into wage negotiations, are both in short supply.

Expected spending on shopping and discretionary services had been in a clear downtrend dating back to the onset of the anti-corruption drive. This trend was closely mapped by the deceleration in retail sales. More recently, attitudes have been more positive, on balance, and retail sales have accordingly been able to stabilise amidst a resilient performance from national accounts consumption. Uses of household income (figure 24) remain cautious though, with savings running above long run average. Consumers’ preferred investment vehicles have also tilted in a risk averse direction recently. This latter development is no doubt related, in part, to the equity market. See the dicussion on pages 14-17 for more on this issue.

Passenger car sales ended Q1 up 8.7%yr, but growth slowed to just 0.5% in Q2. While 18.3% of survey respondents plan to buy a car over the year ahead as of July, versus the long run average of 12.6%, automakers are probably not holding their breath.

Housing and auto sales

-50

-25

0

25

50

75

100

125

150

-50

-25

0

25

50

75

100

125

150


%yr%yr

Total auto sales Housing sales Passenger only


70

80

90

100

110

120

70

80

90

100

110

120

Jun-07 Dec-08 Jun-10 Dec-11 Jun-13 Dec-14

% of sample average

% of sample average

Employment outlook

Expected personal finances

Current personal financesSource: MNI, Westpac. 3mma.

Westpac-MNI employment & family finances

15202530354045

15202530354045

% of income% of income

Sample average

Use of household income in China

0

5

10

15

20

0

5

10

15

20

Sample average

0246810

02468

10

Apr-07 Oct-08 Apr-10 Oct-11 Apr-13 Oct-14

Sample average

DEBT SERVICE

INVESTMENTS

SAVINGS

Figure 22: Housing and auto purchases

Figure 23: Consumer sentiment: income & jobs

Figure 24: Uses of household income


Qua

rter

lyJu

n–12

Sep–

12D

ec–1

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3Ju

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Sep–

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Net

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Seco

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7.9

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na

GD

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flato

r %yr

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Fixe

d in

vest

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ator

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1.6

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Land

pric

e in

dex

%yr

2.3

1.7

2.6

3.9

5.1

6.2

7.0

7.5

7.2

6.1

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3.8

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Cons

umer

pric

e in

dex

%yr

2.9

1.9

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2.4

2.4

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Non

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Cent

ral r

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14.7

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10.8

10.2

10.8

10.8

9.7

8.7

7.3

7.5

Cent

ral e

xpen

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1

Cent

ral o

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ting

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Mon

ey s

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.612

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Bank

loan

s (s

tock

) %yr

16.0

16.2

15.0

14.9

14.2

14.3

14.1

13.9

14.0

13.2

13.6

14.7

14.4

Tota

l cre

dit s

uppl

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ew, r

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nual

) %G

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25.3

28.5

29.5

33.1

32.6

31.6

29.4

28.1

29.0

26.1

25.9

24.0

22.6

Tabl

e 1:

Gen

eral

mac

roec

onom

ic d

ata

Tabl

e 1

cont

inue

d on

pag

e 11


Qua

rter

lyJu

n–12

Sep–

12D

ec–1

2M

ar–1

3Ju

n–13

Sep–

13D

ec–1

3M

ar–1

4Ju

n–14

Sep–

14D

ec–1

4M

ar–1

5Ju

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Expo

rts

%yr

10.5

4.5

9.4

18.9

4.1

3.9

7.5

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13.0

8.6

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to G

36.

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310

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to A

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pan

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to A

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alia

15.1

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from

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1.6

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23.

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from

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Trad

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52.6

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54.1

55.0

55.0

51.0

52.8

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estic

ord

ers

50.2

47.4

47.7

48.8

50.3

48.2

49.4

44.4

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ing

clim

ate

– %

of a

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and

for l

oans

87.4

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Ease

of p

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ance

121.

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ers’

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107.

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198

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8.5

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87.2

78.6

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tpac

MN

I Con

sum

er S

entim

ent*

– %

of a

vera

ge

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dlin

e co

mpo

site

100.

495

.099

.499

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0.3

95.0

101.

797

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cted

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ily fi

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se p

rice

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ctat

ions

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ent o

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7.4

98.0

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810

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105.

495

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7.7

97.4

97.5

92.5

91.2

91.7

91.0

Sour

ces:

Wes

tpac

Eco

nom

ics,

CEI

C, M

NI.

Tabl

e 1:

Gen

eral

mac

roec

onom

ic d

ata

* Q

uart

erly

obs

erva

tions

are

the

3 m

onth

ave

rage

.


Mon

thly

Jul–

14Au

g–14

Sep–

14O

ct–1

4N

ov–1

4D

ec–1

4Ja

n–15

Feb–

15M

ar–1

5A

pr–1

5M

ay–1

5Ju

n–15

Indu

stria

l pro

duct

ion

%yr

3m

ma

9.0

8.4

8.0

7.5

7.6

7.6

7.3

7.2

6.4

6.1

5.8

6.2

Elec

tric

ity6.

94.

13.

42.

73.

62.

76.

03.

82.

8–0

.12.

53.

9

Proc

esse

d cr

ude

oil

3.6

3.9

4.9

6.3

6.6

5.7

7.5

5.4

5.5

4.8

8.2

7.2

Cem

ent*

3.9

3.9

3.2

1.6

–0.7

–0.8

nana

–21.

2–1

4.4

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6–6

.6

Stee

l pro

duct

s*6.

25.

23.

42.

82.

34.

4na

na2.

63.

42.

92.

1

Non

–fer

rous

met

als*

7.0

8.2

9.2

8.1

7.9

10.3

nana

17.3

19.9

21.1

23.5

Aut

omob

iles*

9.6

7.1

5.1

3.9

3.6

1.7

nana

3.7

–0.6

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Civ

ilian

shi

ps*

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0–7

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0.3

nana

26.9

11.0

7.0

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Met

al c

uttin

g to

ols*

28.7

33.9

36.6

33.2

28.3

27.6

nana

4.6

6.9

5.2

9.7

Jul–

14Au

g–14

Sep–

14O

ct–1

4N

ov–1

4D

ec–1

4Ja

n–15

Feb–

15M

ar–1

5A

pr–1

5M

ay–1

5Ju

n–15

Fixe

d as

set i

nves

tmen

t %yr

3m

ma

16.8

15.6

13.5

12.9

12.9

13.3

13.3

13.4

13.6

12.2

10.9

10.4

Man

ufac

turin

g, o

f whi

ch14

.113

.811

.310

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.313

.113

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99.

3

Hea

vy in

dust

ry13

.313

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.48.

810

.311

.812

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.28.

77.

56.

87.

1

Har

d in

frast

ruct

ure,

of w

hich

24.0

20.1

18.0

18.5

18.0

18.4

17.6

19.6

22.0

20.5

18.5

17.3

Hig

hway

s19

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.114

.99.

819

.121

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Railw

ays

27.1

32.8

37.1

31.5

30.8

18.0

14.6

11.9

33.3

34.5

44.3

23.7

Util

ities

16.3

14.7

18.1

20.5

18.9

13.9

15.3

18.2

21.9

20.5

18.1

15.7

Real

est

ate,

of w

hich

11.6

11.4

10.1

10.1

9.3

5.8

5.4

6.3

9.1

5.8

3.2

2.1

Dw

ellin

gs10

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97.

97.

26.

74.

03.

95.

26.

93.

50.

60.

7

Non

–res

iden

tial

13.3

14.8

15.3

16.8

15.2

9.7

8.4

8.8

14.0

10.9

10.3

5.1

Off–

mar

ket u

rban

con

stru

ctio

n–1

8.4

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5.7

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3–3

2.4

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7–1

8.7

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3–2

0.9

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7

Jul–

14Au

g–14

Sep–

14O

ct–1

4N

ov–1

4D

ec–1

4Ja

n–15

Feb–

15M

ar–1

5A

pr–1

5M

ay–1

5Ju

n–15

Valu

e of

new

pro

ject

sta

rts

16.2

17.7

16.3

12.1

10.3

11.5

8.1

3.7

2.3

8.8

9.9

–0.2

Num

ber o

f new

pro

ject

sta

rts

8.6

15.1

9.5

9.5

4.7

7.6

5.8

5.2

6.0

8.7

12.2

11.3

Loca

l gov

ernm

ent p

roje

cts

16.9

15.8

13.8

13.2

13.9

15.4

15.2

14.8

13.8

12.4

11.0

11.0

Cent

ral g

over

nmen

t pro

ject

s16

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.78.

09.

20.

9–1

0.4

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10.5

8.3

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Stat

e ow

ned

ente

rpris

e in

vest

men

t15

.012

.512

.111

.011

.09.

510

.612

.414

.512

.010

.110

.7

Tabl

e 2:

Res

ourc

e re

late

d ec

onom

ic in

dica

tors

Tabl

e 2

cont

inue

d on

pag

e 13

. * O

utpu

t for

thes

e se

ctor

s w

as n

ot re

leas

ed fo

r the

mon

ths

of Ja

nuar

y an

d Fe

brua

ry. A

s a

cons

eque

nce,

we

have

en

tere

d na

for t

hose

two

mon

ths

and

repo

rted

the

unsm

ooth

ed y

ear–

ende

d ra

te fo

r Mar

ch.


Mon

thly

%

yr 3

mm

a un

less

oth

erw

ise

spec

ified

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g–14

Sep–

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4N

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4D

ec–1

4Ja

n–15

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5A

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me

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8.3

–17.

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5.7

–14.

2

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me

of h

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–9.1

–9.6

–13.

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–10.

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0.2

–10.

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–13.

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–9.4

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ern

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ince

s–1

5.8

–16.

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6.3

–15.

8–1

5.1

–13.

6–1

3.6

–13.

8–1

3.0

–8.4

–0.6

8.8

Cent

ral p

rovi

nces

2.2

1.6

0.1

–1.0

–1.9

–2.2

–9.8

–16.

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3–3

.61.

7

Wes

tern

pro

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.9–2

.4–3

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0.5

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7–9

.5–5

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.6

Volu

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–1.5

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6.7

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4.4

–32.

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3.5

–41.

7–4

4.5

70 c

ity n

ew d

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es n

et %

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–o–m

–88.

6–9

5.7

–98.

6–1

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–97.

1–9

1.4

–88.

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0.0

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1.4

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9–2

.9

70 c

ity se

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et %

risi

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–o–m

–91.

4–9

5.7

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0.0

–75.

7–7

5.7

–78.

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5.7

–48.

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.117

.132

.9

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les,

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6.8

5.3

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9.5

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5.4

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6.5

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6

Terr

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18.

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07.

87.

67.

37.

39.

87.

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7

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atic

frei

ght

19.3

21.2

21.1

23.0

21.8

22.5

18.2

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0.8

1.6

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l air

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86.

65.

96.

35.

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38.

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.09.

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75.

8

Aug–

14Se

p–14

Oct

–14

Nov

–14

Dec

–14

Jan–

15Fe

b–15

Mar

–15

Apr

–15

May

–15

Jun–

15Ju

l–15

Man

ufac

turin

g PM

I – in

dex

– of

whi

ch51

.151

.150

.850

.350

.149

.849

.950

.150

.150

.250

.250

.0

Out

put

53.2

53.6

53.1

52.5

52.2

51.7

51.4

52.1

52.6

52.9

52.9

52.4

New

ord

ers

52.5

52.2

51.6

50.9

50.4

50.2

50.4

50.2

50.2

50.6

50.1

49.9

New

exp

ort o

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s50

.050

.249

.948

.449

.148

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.548

.348

.148

.948

.247

.9

Raw

mat

eria

l inv

ento

ries

48.6

48.8

48.4

47.7

47.5

47.3

48.2

48.0

48.2

48.2

48.7

48.4

Fini

shed

goo

ds in

vent

orie

s48

.147

.247

.947

.247

.848

.047

.048

.648

.047

.547

.747

.4

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hase

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ts51

.951

.250

.750

.550

.149

.649

.449

.750

.151

.050

.950

.3

Impo

rts

48.5

48.0

47.9

47.3

47.8

46.4

47.5

48.1

47.8

47.6

48.0

47.8

New

ord

ers

to fi

nish

ed g

oods

inve

ntor

ies

ratio

1.09

1.11

1.08

1.08

1.05

1.05

1.07

1.03

1.05

1.07

1.05

1.05

Sour

ces:

Wes

tpac

Eco

nom

ics,

CEI

C.

Tabl

e 2:

Res

ourc

e re

late

d ec

onom

ic in

dica

tors


Equities & the household sectorThe July edition of the Westpac MNI China Consumer Sentiment Survey was conducted whilst the Chinese equity markets was in free fall to its early July trough (figure 25). This accident of timing transformed the July survey into a near-perfect experiment testing the importance of the equity market for the collective consumer psyche. Ergo, the July survey can be interpreted as a referendum on the question “Is the equity market an important factor in the collective psyche of Chinese households?” The fact that the survey’s headline indicator increased strongly in the month, alongside broadly positive details, indicates that the answer to that hypothetical question is a decisive “no”.

The fact that the household sector offered a collective shrug at the stock market turmoil of June/July is internally consistent with the weak state of consumer confidence reported during the market’s boom phase in 2014 and early 2015. It seems that both dramatic gains and spectacular busts in equities can pass by relatively unheeded by the overwhelming majority of Chinese households. In short, there was no discernible wealth or confidence effect from the upswing in the equity market, so there was nothing to unwind when the bust arrived.

In the year to June 2015, despite the massive stock price appreciation in 2014, the low inflation adjusted returns paid by deposits, the poor performance of the housing market and a string of interest rate cuts, an average of just 5% of respondents to the survey gauged that the stock market was the “wisest place for their savings” over that period (figure 26). That compares to the 17% that nominated housing; the 37% that nominated bank deposits; and the 20% advocating for wealth management products (which have had reputational issues of their own). Those relativities are reflected in the fact that savings deposits account for approximately 54% of GDP, while household equity holdings account for less than one third of that amount.

All of the above should go a long way towards proving the point that the gyrations of the equity market should not be of primary concern to those with an interest in Chinese consumer behaviour.

China’s share market & the Westpac MNI CSI sampling period

3000

3500

4000

4500

5000

5500

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jul-151000

1500

2000

2500

3000

3500index index

Sampling period

Shenzhen Composite (rhs)

Shanghai Composite (lhs)

Sources: CEIC, Westpac Economics, MNI.Final observation is close of 28-7-2015.

0

10

20

30

40

Bankdeposits

WMPs LocalHousing

ForeignHousing

Localshares

Funds &bonds

Pay downdebt

Other

% of total

Source: MNI, Westpac. Other includes “don’t know”.

Average year to June 2015.

Chinese consumers: wisest place for savings

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

Apr-07 Apr-09 Apr-11 Apr-13 Apr-15

% of total% of totalPercent reporting annual gainsPercent reporting annual losses

Source: MNI, Westpac.

Stock market self-declared profit & loss

Figure 25: Stocks & the July surveying period

Figure 26: ‘Wisest place for savings”: year to Jun-15

Figure 27: Self-declared trailing profit or loss

China’s equity market & the real economy


Equities & the financing of businessThe market crunch will no doubt scupper, for now, the plans of firms who were hoping to raise funds directly through this channel. This will be a blow for those firms looking towards a capital-raising to lower their leverage ratios. However, even in the midst of the boom, equity was a small proportion of total financing for China Inc., never exceeding 5%, so from an aggregate point of view (figures 28 & 29) this can be put down as an inconvenience, not a major impost.

Further to the above points, contrary to western practice, loan covenants or ‘triggers’ linked to stock prices are essentially non-existent in China. As the stock market has historically exhibited only the most tenuous link to underlying profitability and the economy at large it would be irrational for financiers to link lending decisions to its gyrations, or for individuals firms to be held accountable for the same. Access to traditional forms of finance should thus be relatively unaffected, although on this point we note that demand for credit is presently weak, which is limiting the impact of monetary policy easing to date (see page 6).

Anecdotes suggest that even if traditional covenants are rare, some firms without access to traditional collateral have apparently pledged shares in exchange for financing from ‘shadow’ banks. This issue comes back to the highly unbalanced nature of the equity price boom itself. Highly speculative start-up ventures were bid up to extravagant price-to-earnings (P-E) ratios in the lead-up to the crash, but blue chips with an actual historical record of profitability and a relatively transparent balance sheet and operating model (such as the banks) continued to trade at rather unflattering P-E ratios. Couple this obviously vulnerable micro pricing constellation to the rapid increase in margin loans set against these stretched valuations and you have a recipe for major volatility.

Taking a step back, figure 30 depicts Chinese market capitalisation to GDP against living standards, with Japan and Korea as comparators. This style of presentation highlights the modest nature of the 2014-15 episode versus 2007, as well as the volatile boom-bust nature of equity markets over the course of the economic development process and the financial maturation that comes with it.

Total social financing: share of the stock

0

20

40

60

80

100

120

0

20

40

60

80

100

120

Dec-02 Dec-05 Dec-08 Dec-11 Dec-14

%%

Other Bond and equityBank loans (including FX) Off balance sheet

Total social financing: stock as a % of GDP

0

25

50

75

100

125

150

175

200

0

25

50

75

100

125

150

175

200

Dec-02 Dec-05 Dec-08 Dec-11 Dec-14

% GDP%GDP

Other

Off balance sheet

Bank loans (including FX)

0

30

60

90

120

150

0

30

60

90

120

150

5 10 15 20 25


Sources: CEIC, Westpac.

Market capitalisation, % GDP

ChinaFrom 1995

South KoreaFrom 1971

JapanFrom 1960

Equity market cap & living standards

Figure 28: Total financing by type, stock, % share

Figure 29: Total financing by type, stock, % of GDP

Figure 30: Market cap % of GDP & living standards


Equities & structural changeThe final point on the previous page referenced the linkage between economic development and financial maturation. This page and the next will draw out that theme with reference to a) the changing structure of the real economy as China attempts to navigate the middle income phase of its development, and b) the interaction between these factors and financial reform and maturation, with reference to the role of the equity market.

Figure 31 depicts the share of financial services in GDP in a sample of East Asian economies. The history traced by Japan and Korea shows that that financial services become increasingly more important to overall economic activity right up to the low reaches of high income level around the $20k of GDP per head mark, at which point they account for around 6% of GDP. Interestingly though, China has deviated well above the path traced by Japan and Korea in this regard, and is presently residing above 7% of GDP at $10k GDP per head. That is despite the fact that it is widely ackowledged that the share of manufacturing in Chinese GDP has been unusually high and service sector activity accordingly low.

The key to understanding these apparently contradictory points is that the provision of financial services encompasses both investment and savings decisions, the management of assets and the creation of liabilities, and China has been remarkably adept at generating both over the course of its high growth era. China’s gross saving generation as a share of GDP since WTO entry has been unprecedented for a large non-oil exporting economy and it has managed to put a very large proportion of those savings to work at home in high yielding investments. This has created a virtuous circle of wealth creation, which spilled back into high demand for the services of the financial system. China has accordingly achieved a much greater degree of financial deepening at its current stage of development than relevant peer economies. Looking ahead, as the underlying growth rate slows and both investment and savings shares decline (the other side of the rebalancing coin regarding consumption), financial services may rise no faster than overall GDP for some years. However, within the system household liability generation will become more important, and corporate debt liabilities less so.

0

2

4

6

8

10

0

1

2

3

4

5

6

7

8

9

10

5 10 15 20 25


Sources: CEIC, Japanese Statistician, Westpac.

Financial services, % GDP

China1978 to 2014

South Korea1955 to 2013

Japan1955 to 1998

Financial industry share & living standards

Shares of nominal GDP

0

3

6

9

12

15

18

0

3

6

9

12

15

18

Construction Real estateservices

Finance Farm Commerce &hospitality*

Dec-00 Dec-05Dec-10 Dec-14

Sources: CEIC, Westpac Economics.* Wholesale, retail, accommodation & catering.

38404244464850

38404244464850

Dec-00 Dec-05 Dec-10 Dec-15

%GDP%GDPSecondary Tertiary

Investment & savings % the ICOR

0

4

8

12

16

25

30

35

40

45

50

55

1994 1997 2000 2003 2006 2009 2012 2015

Ratio% GDP

Investment efficiency* (rhs)

Savings share (lhs)

Investment share (lhs)

Sources: IMF, Westpac Economics.*ICOR: incremental capital to

Figure 32: Structural change, selected industries

Figure 33: The investment-led model has matured

Figure 31: Financial services, % of GDP


Equities & financial reformThis page links the aforementioned strands of argument together under the financial reform banner in both its domestic and international aspects. Consider figure 34, which presents a stylised view of the debt load carried by various segments of the Chinese economy. Note on the previous page the discussion was general and considered financial ‘liabilities’, whereas figure 34 considers debt alone, which is a subset of total liabilities. The concern for China is that the structure of its total liabilities is far too skewed towards debt, and the debt itself is too narrowly held. Faced with a stylized situation like this, in the abstract, one might advice state owned firms to privatise through IPO (or sell/release more shares if already listed) and pay down debt with the proceeds; and local government to conduct asset sales and use those proceeds to also pay down debt. A side element would encourage local governments to refinance bank debt tied to individual projects with bond financing tied to general revenues.

These points are, in fact, a quick summation of the Chinese leadership’s basic plan to rebalance the economy’s liability stock in a fashion that better suits the assets held by the system’s biggest borrowers, while tilting the financial system in a direction more amenable to the middle income phase of development. This ties in with the objective of replacing the old monetary policy regime (a hybrid mixing monetary aggregate targeting with an FX anchor) with the favoured high income economy method of short run interest rate setting that transmits through a floating exchange rate and the yield curve.

These desires explain why the equity market was given policy support in the first place, which is what jolted it higher over the course of 2014 despite the weak performance of the real economy. If a large and sustained increase in the supply of equity liabilities is to absorbed, it is best to encourage investors with a strong positive price signal. Bringing in new investors, such as onshore insurers and offshore fund managers, was another element of the plan. There has been a sharp increase in inward portfolio quotas over the last year (figure 36). Greater openness to inbound investment has also extended to the fixed income sphere, encompassing the interbank and sovereign, semi-sovereign and corporate bond markets.

Financial assets by country and region

0

100

200

300

400

500

USA Japan WesternEurope

Otherdeveloped

China Other EMAsia

India

% GDPEquity

Financial bonds

GovernmentbondsLoans -SecuritizedCorporatebondsLoans -Unsecuritized

Sources: McKinsey, Westpac.2012Q2. Excludes deposits.

% GDP

Figure 34: Debt by sector in China: stylized facts

Figure 35: Financial liability stocks by country

Figure 36: Portfolio flow quotas by program

Debt in the Chinese economy: stylized facts

Sector Characterisation of debt load

Urban households Low – mortgage exposure < 20% of GDP

Rural households Very low - property rights & collateral issue

State owned firms Too much – ease of access to banks

Private firms Low – difficulty of access to banks

Central government Low – but has huge contingent liabilities

Local government Too much – vertical fiscal imbalance & stimulus era hangover.

The nation Huge international creditor

Source: Westpac Economics

QFII, RQFII, QDII & Shanghai-HK connect

0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100

May-03 May-05 May-07 May-09 May-11 May-13 May-15

USDbnUSDbn

RQFII

QFII

QDII

Northbound SH-HK Connect

Southbound SH-HK Connect

Sources: CEIC, Westpac,Dragonomics.


Steel

• Steel prices in China continued to fall in Q2 and ended the quarter 35% below the peak recorded during the GFC. The drop was aided by another weak quarter for China’s residential construction sector and slowing auto manufacturing growth.

• Prices for all steel products fell in Q2, led by plate, which was down 30%yr to average RMB2404. Hot-rolled sheet fell 29%yr to RMB2425 and rebar fell 25% to RMB2435.

• China’s steel production fell 1%yr in H1 2015 to 408 Mt, driven by the central regions of Hubei, Hunan and Henan, where year-on-year output fell 4%, 4% and 1%, respectively. Output grew

Benchmark steel prices

2500

3000

3500

4000

4500

5000

5500

6000

2000

2500

3000

3500

4000

4500

5000

5500

Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15

RMB/tRMB/t

hot-rolled sheet

rebar

plate

wire rod

cold-rolled sheet (rhs)

Source: Bloomberg

The rebar steel price & input costs

250

300

350

400

450

500

550

600

650

700

30405060708090

100110120130140150160170

May-10 Apr-11 Mar-12 Feb-13 Jan-14 Dec-14

USD/tIndex USD

Australian inputs index (lhs)

Chinese rebar (rhs)

Sources: Westpac Economics, Bloomberg

Input index based on 120kg of scrap, 770kg of met coal & 1400kg of iron ore to produce 1 tonne crude steel

*Australian spot prices for iron ore & coking coal.

China crude steel output: level & growth

-200

-150

-100

-50

0

50

100

150

200

250

-15

0

15

30

45

60

75

90

105

120

Mar-91 Mar-96 Mar-01 Mar-06 Mar-11

%yr Mt

Crude steel output (rolling 3mth sum, rhs)Growth rate (rhs)

Source: CEIC

Figure 37: Benchmark steel prices

Figure 38: Crude steel output: level & growth Figure 39: The rebar price and input costs

Table 3: Steel prices (quarterly averages).

Domestic RMB/t Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Rebar 3749 3527 3507 3527 3348 3258 3078 2940 2577 2435

Hot–rolled sheet 4043 3623 3609 3489 3399 3392 3272 3008 2636 2425

Cold–rolled sheet 4865 4697 4460 4342 4214 4096 4001 3898 3582 3160

Plate 3934 3676 3599 3455 3433 3448 3270 2962 2588 2404

Wire rod 3697 3526 3509 3519 3394 3347 3155 2952 2605 2471

Benchmarks USD/t

Rebar benchmarker 503 476 474 477 454 431 416 392 344 314

HRC benchmarker 545 493 494 480 466 454 450 410 359 325

CRC benchmarker 647 629 613 611 597 562 552 534 489 424

Source: Bloomberg.


modestly in other key producing regions, with Hebei, Jiangsu and Liaoning recording gains of 1%yr over the same period.

• In response to persistent weakness in the construction sector China’s rod and bar output fell by 9%yr in H1 2015. However, production of hot and cold rolled sheet increased by 7%yr over the same period.

• Steel exports increased by 28%yr to 52 Mt in H1 2015. Around 13% of China’s steel production was exported (up from 10% in 2014). In response, the EU, India, the US and Canada implemented additional duties on Chinese steel exports or initiated dumping investigations.

0

200

400

600

800

1000

1200

1400

10 20 30 40 50 60GDP per person (thousands of PPP international dollars)

China

India

Japan

South Korea

USA

Sources: World Steel Association; IMF

Consumption, kgpp

Steel demand per headFigure 43: Steel demand per head

Steel end-use by sector

Construction68%

Machinery18%

Autos7%

Shipbuilding2%

Rail2%

Other3%

Source: Bloomberg

Steel inventory cycle: Nov-13 to Feb-15.

-15

0

15

30

45

-3 0 3 6 9 12

inventories%yr

Sales%yr

Nov-13

Jan-14

Feb-14

Mar-14

Apr-14

May-14

Dec-13

Jun-14

Jul-14

Sep-14

Aug-14

Oct-14

Nov-14

Jan-15Dec-14

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Chinese construction, steel & cement

-30

-15

0

15

30

45

-10

0

10

20

30

40

Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14

%yr 3mma%yr 3mma

Real estate plus hard infra investment (lhs)Steel product output* (rhs)Cement output* (rhs)

Sources: CEIC, Westpac Economics.*Jan-Feb interpolated in 2014 and 2015.

Figure 40: Steel end–use by sector

Figure 42: Steel inventory–to–sales scatter plot

Figure 44: Construction, cement and steel

Figure 41: Steel inventories by product typeChinese steel inventories by product

50

150

250

350

450

50

150

250

350

450Mt Mt

hot rolled long production

Sources: Westpac Economics, Bloomberg

30

40

50

60

70

50

70

90

110

130

Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

cold rolled (rhs)

steel plate (lhs)


Table 4: Iron ore prices (USD/t, 62% ferrous metal content unless otherwise indicated).

TSI spot price, CFR Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Quarter average 148.2 125.8 132.6 134.9 120.4 102.7 90.3 74.4 62.5 58.5

Quarter end 137.3 116.5 131.4 134.2 116.8 93.8 78.1 71.3 51.4 59.4

Quarter high 158.9 141 142.8 139.7 135 119.4 98 84.17 71.49 65.6

Quarter low 132.9 110.4 116.9 131.2 104.7 89.0 78.0 66.8 51.4 47.1

TSI in CNY terms, CFR 922.4 774.3 812.0 821.4 734.5 639.7 556.9 457.3 389.6 362.8

IODEX Aust FOB 140.5 117.9 122.2 122.6 110.8 93.9 81.4 66.1 57.6 53.2

IODEX Brazil FOB 129.0 106.5 106.9 107.2 95.9 80.4 67.3 54.3 50.9 46.5

Sources: Bloomberg; Platts. CFR is cost including freight. FOB is free on board.

• The price of iron ore fluctuated significantly during Q2. It averaged US$59 (CFR) a tonne, down 6%qtr and 43%yr. On 8 July the spot price fell 10.1% (US$5.25) to US$44.6/t. The price subsequently recovered to hover around US$49/t through the remainder of July.

• China’s iron ore port stocks fell sharply during Q2 to finish at 74.1 Mt, down 21%qtr and 30%yr. The drawdown in China’s port stocks provided support to prices through May and early June.

• China’s imports of iron ore fell 4%yr in Q2 to 226 Mt with import values down 48%yr to US$13 billion. Iron ore imports from Australia increased in Q2, despite the overall decline in

Iron ore prices: spot and forward

40

60

80

100

120

140

160

180

Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

USD/tTSI 62% CFR Tianjin

SGX 3 month forward

SGX 12 month forward

Source: Bloomberg

Iron ore prices and rebar steel

200

300

400

500

600

700

800

900

40

60

80

100

120

140

160

180


USD/tUSD/t

Iron ore TSI 62% CFR (lhs)

Rebar steel (rhs)

Source: Bloomberg

Figure 45: Iron ore prices: spot and forward

Figure 46: Iron ore prices and rebar steel Figure 47: Port inventories versus end demand

Iron ore

Chinese port ore inventories scaled by demand

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14

ratioratio

To pig iron production

To crude steel production

Sources: CEIC, Bloomberg, Westpac Economics


volumes, and were up 6%yr to 147 Mt. As a result Australia’s share of China’s seaborne market increased to 65% from 59% a year ago.

• Brazil’s exports to China were steady in Q2 at 42 Mt, which equates to a 19% market share.

• Brazil’s export potential received a boost in Q2 following an announcement from China’s Transport Ministry that Vale’s 400 000 dwt vessel, the ‘Valemax’, will be permitted to dock at the Qingdao, Dalian, Tangshan and Ningbo ports. Vale estimates that the Valemax will reduce shipping costs by US$4–6/t. Over the last year, Australia’s freight advantage averaged US$8/t, so this is a material development.

World trade in iron ore - seaborne

China67%

Japan11%

Europe11%

South Korea

5% other6%

Imports

Source: AME

Australia 50%

Brazil24%

South Africa

4%

Ukraine3%

Canada3%

other16%

Exports

Figure 51: World trade in iron ore – seaborne

Chinese import volumes by source

0

20

40

60

80

100

0

20

40

60

80

100

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

% shareMtAust (lhs)

Brazil (lhs)

Other (lhs)

Aust market share (rhs)

Source: Bloomberg

Chinese iron ore imports

50

75

100

125

150

175

200

0

2

4

6

8

10

12

14


USD/tUSDbnAust (lhs) Brazil (lhs) Other (lhs)

TSI 62% CFR (rhs) Import unit value (rhs)

Source: Bloomberg

Shares of world iron ore output

Australia34%

Other22%

Brazil19%

China16%

India5%

Russia4%

Source: AME

Figure 48: Chinese import volumes by source

Figure 50: Chinese imports, unit values & prices

Figure 52 : Shares of world iron ore output

Figure 49: Australian iron ore exports to ChinaAustralian iron ore exports to China

0

1

2

3

4

5

6

7

8

9

10

10

15

20

25

30

35

40

45

50

55

60


AUDbnMt

volume (lhs) value (rhs)

Source: ABS


Iron ore mine cost curve

0 225 450 675 900 1125 1350 1575 1800 2025

USD/tOthers

Sierra Leone

Russia

Canada

China

India

Australia

Brazil

indicative spot cfr $56/t

Sources: AME, Westpac. Includes mining, royalties, freight from mine to port, administration and processing.

Cumulative export supply, mt

Chinese ferrous metal miners making losses

0

5

10

15

20

25

30

0

5

10

15

20

25

30

May-07 Nov-08 May-10 Nov-11 May-13 Nov-14

% share% share

Number of Chinese ferrous mining firmsmaking a loss, % of total


Figure 56: Chinese iron ore miners: loss–makers Figure 57: Seaborne iron ore cost curve

• China’s imports of iron ore from minor producers (countries other than Australia and Brazil) fell by 37%yr to 37 Mt in Q2. As a result, their share of China’s iron ore imports fell to 16% (from an average of 24% in 2014).

• China’s domestic iron ore production fell by 11%yr to 350 Mt in Q2 as high cost domestic concentrate continues to be displaced by low cost seaborne iron ore.

• Australia’s iron ore export volumes to China increased 6%yr to 155 Mt in Q2 while values decreased 30%yr to $A9.4 billion.

Total supply of iron ore by source

0

50

100

150

200

250

0

50

100

150

200

250million tmillion t

Total

Domestic

Imports

Source: CEIC, Westpac.

0

10

20

30

40

50

60

0

10

20

30

40

50

60


% share% share

Rest of worldAustralia

Import share of total supply

Total ore supply by source

Iron ore inventories & supply growth

-40

-20

0

20

40

60

80

-40

-20

0

20

40

60

80

Sep-07 Mar-09 Sep-10 Mar-12 Sep-13 Mar-15

%yr%yr

Imports

Domestic production

Change in inventories

Sources: Westpac Economics, Bloomberg.Data smoothed.

Ferrous mining profit margins in China

400

500

600

700

800

900

1000

1100

1200

1300

4

6

8

10

12

14

16

18

20

22

24

Sep-07 Sep-09 Sep-11 Sep-13 Sep-15

CNY/tmargin %

Ferrous metal mining margin (lhs)

Domestic ore prices ytd ave (rhs)


Figure 54: Chinese iron ore miners’ margins Figure 55: Chinese output, imports & stocks

Figure 53: China’s total iron ore supply


Iron

ore

unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

-15

Jun-

15

Chi

na im

port

sM

t18

6.5

198.

021

6.7

219.

122

2.0

235.

324

2.1

233.

622

7.1

226.

0

Aus

tral

iaM

t89

.810

2.6

111.

811

2.9

118.

213

8.2

149.

414

2.7

144.

414

6.8

Braz

ilM

t38

.432

.140

.544

.441

.638

.944

.745

.841

.842

.3

valu

eU

SDbn

24.2

26.3

26.3

28.1

28.4

25.7

21.9

18.5

15.8

13.2

Raw

pro

duct

ion

*M

t28

7.4

356.

638

7.0

405.

430

4.2

393.

741

0.6

389.

328

0.6

350.

2

Iron

ore

stoc

ks a

t por

ts, e

nd o

f qtr

Mt

68.1

71.5

70.1

81.3

103.

810

5.7

103.

295

.293

.374

.1

wee

ks o

f im

port

sw

eeks

4.8

4.7

4.2

4.8

6.1

6.2

6.1

5.6

5.5

4.4

Aus

tral

ian

expo

rts

to C

hina

Mt

92.9

107.

911

3.8

126.

812

2.2

145.

814

9.7

152.

214

3.7

155.

0

valu

eAU

Dbn

11.2

12.3

13.6

15.6

14.4

13.4

11.9

10.9

9.8

9.4

Met

allu

rgic

al c

oal

Chi

na im

port

sM

t17

.218

.119

.420

.713

.018

.113

.418

.010

.910

.7

valu

eU

SDm

n24

3124

9824

1424

1816

3418

1212

7017

3698

088

3

Aus

tral

ian

expo

rts

to C

hina

Mt

9.1

9.8

12.4

14.0

10.1

11.6

11.2

13.4

7.7

10.8

valu

eAU

Dm

n12

8412

9615

4718

2312

4812

3811

4415

1395

613

20

Sour

ces:

Bloo

mbe

rg, A

BS, I

HS,

CEI

C. *

Raw

min

e ou

tput

with

a lo

w ir

on c

onte

nt.

Tabl

e 5:

Iron

ore

& m

etal

lurg

ical

coa

l sum

mar

y da

ta


Metallurgical coal

• Metallurgical coal prices declined rapidly in Q2. Lower import demand from China was the key driver, as steel mills reduced their output while simultaneously utilising more domestic coal. Low volatility HCC CFR China averaged US$95/t in Q2, down 24%yr and 15%qtr.

• Australian benchmark prices for high-quality metallurgical coal delivered in Q3 2015 settled at US$93/t, 15% (US$16.50) lower than in Q2.

• Australia and China signed a Free Trade Agreement in Q2. Under the agreement the 3% tariff on metallurgical coal imports from Australia will be removed immediately.

• China’s total metallurgical coal imports fell 0

50

100

150

200

250

0

50

100

150

200

250

Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15

USD/tUSD/t

Low Vol PCI Semi Soft Prem Low Vol HCC

Source: Platts

Met coal spot prices

Met coal use and supply by country

China52%

Australia16%

USA8%

Russia7%

India4%

Other13%

Production

Source: IEA.

China61%other

13%

India8%

other OECD

8%

Japan5%

Russia5%

Consumption

World trade in met coal

China26%

Japan18%OECD

Europe17%

India13%

Other11%

South Korea11%

Ukraine4%

ImportsAustralia

51%

United States20%

Canada11%

Russia7%

Mongolia5%

Other6%

Exports

Source: IEA

Figure 58: Met coal spot prices

Figure 59: World trade in met coal Figure 60: Met coal use and supply by country

Table 6: Metallurgical coal prices (quarterly average spot prices).

unit Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Prem Low Vol HCC CFR China USD/t 179.7 155.0 154.7 156.3 135.0 124.3 123.3 121.8 111.8 94.5

Low Vol PCI CFR China USD/t 154.9 127.2 125.9 129.0 115.9 108.7 102.1 101.3 99.9 81.0

Semi Soft CFR China USD/t 132.6 114.5 109.1 110.9 101.1 92.8 87.7 89.7 86.6 76.9

Prem Low Vol HCC FOB Aust USD/t 165.9 141.5 140.9 140.5 120.6 111.4 110.7 110.0 104.0 86.8

Prem Low Vol HCC FOB Aust AUD/t 159.6 142.6 155.4 155.3 133.3 123.1 122.4 121.5 114.9 95.9

Source: Platts. CFR is cost including freight. FOB is free on board. HCC is hard coking coal.


by 41%yr to 11 Mt in Q2. Total imports in the month of May were the lowest since the GFC. It is reported that some large steel mills intend to stop importing metallurgical coal in the short term because they have ample stocks and they expect further price declines.

• Of China’s major suppliers, Mongolia was hardest hit by the large decline in imports in Q2. China’s imports from Mongolia declined by 43%yr to a mere 3 Mt. Imports from Australia declined by a relatively smaller 36%yr to 5.5 Mt.

• Australia exported 10.8 Mt of metallurgical coal to China in Q2, down 7%yr (noting time lags between the respective customs data). The value of these exports increased 7%yr to $A1.3 billion, partly reflecting currency depreciation.

Met coal seaborne cost curve

0 50 100 150 200 250 300

USD/t

Other Canada

United States Mongolia

Mozambique Australia

Sources: AME, Westpac. include s mining, royalties, freight from mine to port,

administration and processing.


Figure 64: Seaborne met coal cost curve

Chinese met coal import volumes

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0

1

2

3

4

5

6

7

8

9

10


USDbnMt

Aust. (lhs) Mongolia (lhs) Canada (lhs)

Russia (lhs) Other (lhs) Value (rhs)

Sources: IHS, CEIC.

Total hard met coal exports: Australia

60

70

80

90

100

110

120

130

140

150

160

170

Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-1560

70

80

90

100

110

120

130

140

150

160

170100kt mth100kt mth

Hard met coal exports, all destinations

Source: ABS, CoalPortal.com. Seasonally adjusted by Westpac Economics.

Aust met coal exports to China

0

150

300

450

600

750

900

0

1

2

3

4

5

6


AUDmnMt

volume (lhs) value (rhs)

Source: ABS

Hard coking coal seaborne cost curve

0 30 60 90 120

USD/t

Other

Canada

United States

Mongolia

Mozambique

Australia

Sources: AME, Westpac. Includes mining, royalties, freight from mine to port, administration and processing.


Figure 61: Chinese met coal import volumes

Figure 63: Australian met coal exports: total Figure 62: Aust met coal exports to China

Figure 65 : Seaborne hard coking coal cost curveTable 6: Metallurgical coal prices (quarterly average spot prices).

unit Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Prem Low Vol HCC CFR China USD/t 179.7 155.0 154.7 156.3 135.0 124.3 123.3 121.8 111.8 94.5

Low Vol PCI CFR China USD/t 154.9 127.2 125.9 129.0 115.9 108.7 102.1 101.3 99.9 81.0

Semi Soft CFR China USD/t 132.6 114.5 109.1 110.9 101.1 92.8 87.7 89.7 86.6 76.9

Prem Low Vol HCC FOB Aust USD/t 165.9 141.5 140.9 140.5 120.6 111.4 110.7 110.0 104.0 86.8

Prem Low Vol HCC FOB Aust AUD/t 159.6 142.6 155.4 155.3 133.3 123.1 122.4 121.5 114.9 95.9

Source: Platts. CFR is cost including freight. FOB is free on board. HCC is hard coking coal.


Developments in China’s energy policy

• Australia and China signed a Free Trade Agreement in June. Under the agreement tariffs will be removed from almost all resource and energy products. The 3% tariff on metallurgical coal will be removed immediately and the 6% tariff on thermal coal will be phased out over two years.

• As part of China’s COP21 commitments, Premier Li Keqiang promised that China would reduce the emissions intensity of its economy by 60–65% from 2005 levels and increase the share of non-fossil fuels in total primary energy consumption to 20% by 2030. The government has estimated that it will cost more than US$6.6 trillion to meet these goals.

• China and India reached an agreement on climate change during Narendra Modi’s visit to Beijing in May. Under the agreement, China and India will enhance bilateral co-operation on clean energy technology, energy efficiency, energy conservation, renewable energy, sustainable transportation and low carbon urbanisation.

• The National Energy Administration (NEA) released an action plan for the clean and efficient use of coal between 2015 and 2020. The plan includes increasing coal quality, retrofitting coal-fired power plants, industrial boilers and coal chemical operations, and controlling residential use. To improve coal quality, China will invest in large-scale washing capacity to ensure that 70% of raw coal is washed by 2017 and more than 80% by 2020, up from around 40% currently.

• It is reported that the National Development and Reform Commission (NDRC) is considering the sale of China National Petroleum Corporation and China Petrochemical Corporation’s oil and gas pipelines. These assets would be turned into independent businesses as part of plans to improve market competition, and enhance efficiency and transparency.

• In early July the Shanghai Petroleum and Gas Exchange was launched to promote market-based pricing and structural reform. The NDRC and NEA will oversee the exchange, which will focus on both pipeline gas and LNG. Around 40% of gas is presently sold at market prices.

• The State Council approved the merger of China Power Investment Corporation and State Nuclear Power Technology Corporation to form the State Power Investment Corporation. The newly merged company has an installed generation capacity of 98 GW.

Electricity trends

• China generated 1.4 trillion kWh of electricity in Q2, up 3.9%yr and 5.2%qtr. Electricity generation increased in May and June in the lead-up to summer when consumption typically peaks. Strong growth in hydro generation, up 12%yr, squeezed out thermal needs, leading to a 0.6%yr decline from that source.

• According to the China Electricity Council, investment in new electricity generation capacity is largely being directed to thermal plants. As at the end of May, 172 GW of new capacity was under construction. This included 108 GW of thermal power, 36 GW of nuclear, 19 GW of wind power and 3.6 GW of hydropower.

• The growth of investment in new electricity generation capacity increased 2.8%yr in Q2, driven by a 15%yr increase in thermal generation investment. Investment in hydro and nuclear power declined by 21%yr and 18%yr, respectively.

• China’s electricity consumption increased 1.6%yr to 1.4 trillion kWh in Q2. Consumption in the secondary industry declined 0.4%yr due to weakness in manufacturing activity as the economy shifts away from energy-intensive sectors. Tertiary and residential electricity use increased by 9%yr and 7%yr, respectively.


Shares of energy output growth

-15

0

15

30

45

-15

0

15

30

45

Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11 Dec-14

Contribution from other sourcesContribution from thermal generationElectricity production

%yr/ppt %yr/pptSources: CEIC,

Westpac

Figure 70: Chinese electricity growth: broad source

World energy production

other non-OECD34%

China19%

other OECD12%

United States13%

Russia 10%

Saudi Arabia

4%

India4%

Indonesia3%

Source: IEA

World energy consumption

other Non-OECD26%

China22%other OECD

18%

United States16%

India6%

Russia6%

Japan4%

Germany2%

Source: IEA

Chinese electricity use by sector

0

300

600

900

1200

1500

1800

Mar-12 Mar-13 Mar-14 Mar-15

Billion kWh

secondary industry residentialtertiary industry primary industry

Source: CEIC.

Chinese electricity output by source

0

200

400

600

800

1000

1200

1400

1600


Billion kWh

thermal hydro nuclear wind

Source: CEIC

Generation capacity by source

0.0

0.2

0.4

0.6

0.8

1.0

0.0

0.2

0.4

0.6

0.8

1.0

Thermal(7%)

Hydro(9%)

Nuclear(17%)

Wind(40%)

Solar(303%)

Billion kWBillion kW

2009 2010 2011

2012 2013 2014

Sources: CEIC, Westpac Economics. Number in parenthesesare CAGRs for the period 2009 to 2014.

Figure 67: World energy productionFigure 66: World energy consumption

Figure 69: Chinese electricity use by sectorFigure 68: Chinese electricity output by source

Figure 71: China’s generating capacity by type


Thermal coal

• Key thermal coal FOB prices continued to decline in Q2 due to weak Chinese import demand and ongoing oversupply. Newcastle spot prices declined 8.3%qtr, Qinhuangdao (QHD) by 14%qtr, Baltic 3.1%qtr and Richard’s Bay 0.5%qtr.

• China released its Clean Coal Action Plan 2015–2020, which is aimed at increasing coal quality and retrofitting existing coal-fired facilities.

• Australia and China signed a Free Trade Agreement in Q2. Under the agreement the 6% tariff on thermal coal imports from Australia will be phased out over two years.

• Reduced demand and government directives to reduce production contributed to lower

50

70

90

110

130

150

170

190

210

50

70

90

110

130

150

170

190

210


USD/tUSD/t

Richards Bay 6000kcal

Baltic 6000kcal

Newcastle 6000kcal

QHD 5800kcal

Source: IHS

Thermal coal prices

Thermal seaborne cost curve

0 100 200 300 400 500 600 700

USD/t

Other

Russia

United States

Indonesia

South Africa

Australia

indicative spot fob NEWC US$64

Sources: AME, Westpac. includes mining, royalties, freight from mine to port,

administration and processing.


Thermal coal stocks: ports & generators

0

5

10

15

20

25

30

35


MtQHD Caofeidian JintangTianjin Guangzhou Other

Source: Bloomberg

Figure 72: Thermal coal prices

Figure 73: Thermal coal stocks: ports & generators Figure 74: Export thermal coal cost curve

Table 7: Thermal coal prices (USD/t, NAR unless otherwise indicated).

Quarterly averages Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

QHD 5800kcal 114.9 112.8 105.8 106.1 105.8 100.3 92.8 96.1 87.4 74.9

QHD 5800kcal RMB/t 715.2 694.4 647.8 646.8 645.2 624.8 571.9 590.5 544.9 464.3

Newcastle 6000kcal 91.3 85.4 77.1 82.0 77.4 72.7 68.0 63.0 63.0 57.8

Newcastle 6000kcal AUD/t 88.0 86.7 84.3 88.6 86.5 77.9 73.5 73.7 80.1 74.4

Richards Bay 6000kcal 84.8 80.5 73.0 83.1 78.7 75.0 70.2 65.8 61.5 61.2

Baltic 6000kcal 82.0 75.5 71.4 78.2 74.3 69.4 69.7 68.7 56.9 55.2

Sources: IHS. NAR stands for net as received.


output in H1 2015 from Shenhua and China Coal, two of China’s largest coal producers. Shenhua’s output declined 10%yr to 139 Mt in H1. China Coal’s output fell 22%yr to 46 Mt.

• China’s thermal coal imports declined 31%yr to 40 Mt in Q2 as a joint function of low domestic prices, reduced industrial activity, increased regulatory measures and strong hydropower output. Imports from Indonesia were the most affected, declining 33%yr to 17 Mt. Imports from Australia declined by a lesser 17%yr to 13 Mt.

• Australia’s exports to China declined by 23%yr to 10 Mt in Q2. The value of these exports declined 27%yr to $A635 million.

Thermal coal use and supply by country

China39%

USA17%

Indonesia10%

OECD Europe

7%

India8%

Aust4%

Other15%

Producers

Source: IEA.Note: Includes brown coal.

China39%

USA17%

Other non-OECD14%

Indonesia10%

India8%

Australia4%

Other OECD

8%

Consumers

Figure 78: Thermal coal use and supply by country

Thermal coal imports

230

260

290

320

350

380

410

440

0

5

10

15

20

25

30

35


billion kWhMtIndonesia (lhs)Australia (lhs)Other (lhs)Thermal electricity generation (rhs)

Sources: CEIC; IHS.

Power generation & coal extraction: capex

-40

-20

0

20

40

60

80

-40

-20

0

20

40

60

80


%yr%yr

Power generation

Coal extraction


Aust thermal coal exports to China

0

50

100

150

200

250

300

350

400

450

500

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0


AUDmnMt

volume (lhs)

value (rhs)

Source: ABS.

World trade in thermal coal

China21%

India19%

OECD Europe

17%

Japan12%

South Korea

8%

Other 23%

Imports

Source: IEA.Note: Includes brown coal.

Indonesia48%

Australia15%

Russia10%

Colombia6%

South Africa6%

other15%

Exports

Figure 75: Thermal coal imports

Figure 77: Capex: coal mining vs power generationFigure 76: Aust thermal coal exports to China

Figure 79: World trade in thermal coal


Tabl

e 8:

The

rmal

coa

l sum

mar

y da

ta

unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

–15

Jun–

15

Chi

na im

port

sM

t62

.860

.560

.967

.671

.058

.149

.750

.438

.140

.1

Indo

nesi

aM

t33

.129

.427

.832

.835

.726

.121

.422

.519

.017

.4

Aus

tral

iaM

t12

.912

.217

.015

.915

.415

.217

.515

.110

.612

.6

valu

eU

SDm

n48

4646

7946

4749

7351

4540

6933

4631

5622

5522

44

End

of q

uart

er s

tock

s at

por

tsM

t26

.831

.525

.122

.527

.531

.426

.329

.432

.427

.8

wee

ks o

f im

port

s5.

56.

85.

44.

35.

07.

06.

97.

611

.09.

0

Aus

tral

ian

expo

rts

to C

hina

Mt

7.9

11.3

11.7

11.6

11.4

12.9

11.8

11.1

10.0

9.9

valu

eAU

Dm

n56

1.7

827.

689

2.2

830.

486

2.3

870.

274

1.8

708.

066

4.3

634.

7

Sour

ces:

ABS

, Blo

ombe

rg, I

HS.


Oil

• World oil prices increased throughout April and May in response to growing demand in Asia, the beginning of the driving season in the US and expectations of slower production growth. Prices then proceeded to declined again in June and July as output continued to outpace expectations and sanctions on Iran were lifted, creating the potential for further supply gains.

• In Q2, WTI prices averaged US$57.80/bbl (up 19%qtr), Brent around US$63.5/bbl (15%qtr) and Tapis around US$64.60/bbl (15%qtr).

• China’s benchmark gasoline and diesel prices were adjusted four times in Q2. Gasoline and diesel prices ended the quarter 8% and 9% higher than in Q1, respectively.

Oil prices

45

60

75

90

105

120

135

150

45

60

75

90

105

120

135

150

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

USD/bblUSD/bbl

Brent WTI Tapis

Source: Bloomberg.

Oil use and supply by country

other OPEC24%

other non-OPEC24%Saudi

Arabia13%

Russia13%

United States12%

China5%

Canada5%

Iran4%

Production

Source: BP.

other non-

OECD28%

other OECD24%

United States20%

China12%

Japan5%

India4%

Russia4%

Brazil3%

Consumption

Oil use by sector: China & the world

Transport52%

other21%

Industry14%

Residential6%

Services4%

Agri4%

China

Source: IEA.

Transport64%

Other17%

Industry8%

Residential6%

Services2%

Agri3%

World

Figure 80: Oil prices

Figure 81: Oil use by sector: China & the World Figure 82: Oil use and supply by country

Table 9: Crude oil spot prices (USD/bbl, quarterly).

Brent Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15Quarter average 112.6 103.3 109.7 109.4 107.9 109.8 103.5 77.1 55.1 63.5Quarter end 110.0 102.2 108.4 110.8 107.8 112.4 94.7 57.3 55.1 63.6Quarter high 118.9 111.1 116.6 112.6 111.2 115.1 112.3 94.2 62.6 67.8Quarter low 107.5 97.7 103.0 103.5 105.8 104.8 94.7 57.3 46.6 55.0TapisQuarter average 118.3 108.9 115.9 117.2 114.3 115.0 106.2 79.5 56.1 64.6Quarter end 116.0 109.7 114.5 120.7 113.2 117.0 100.2 58.6 55.9 63.3Quarter high 125.2 116.1 122.2 121.7 118.6 119.4 115.0 98.4 64.2 70.3Quarter low 113.7 103.8 109.1 110.8 111.7 110.1 98.7 58.6 47.4 56.8West Texas intermediateQuarter average 94.3 94.1 105.8 97.6 98.7 103.1 97.6 73.2 48.5 57.8Quarter end 97.2 96.6 102.3 98.4 101.6 105.4 91.2 53.3 47.6 59.5

Quarter high 97.9 98.4 110.5 104.1 104.9 107.3 107.6 91.0 53.5 61.4

Quarter low 90.1 86.7 98.0 92.3 91.7 99.4 91.2 53.3 43.5 49.1Source: Bloomberg.


0

100

200

300

400

500

600


China

India

Japan

South Korea

USA

Passenger cars per 1000 residents

Passenger cars per 1000 residentsFigure 86: Automobile penetration

Chinese oil import volumes

0

5

10

15

20

25

30

35 MtOther Saudi Arabia AngolaRussia Iran Oman

Source: CEIC.

World trade in oil

other OECD28%

other non-

OECD25%

United States16%

China9%

Japan7%

India6%

South Korea

5%

Nether-lands

4%

Imports

other non-

OECD42%

other OECD18%

Saudi Arabia

13%

Russia11%

Canada5%

United States

4%Kuwait

4%

UAE4%

Exports

Source: IEA

Chinese imports of Australian oil

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700


USDmnkt

Volume (lhs)

Value (rhs)

Source: CEIC.

Oil demand per capita

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


China IndiaJapan South KoreaUSA

Consumption toe per capita

Sources: IMF, IEA.

Figure 83: Chinese oil import volumes

Figure 85: World trade in oilFigure 84: Chinese imports of Australian oil

Figure 87: Oil demand per capita

• After falling to a 16 month low in May, China’s crude oil imports increased 27%mth in June to 29 Mt, challenging the US as the world’s largest importer as the first half closed.

• China’s imports of crude oil increased 7.5%yr to 83 Mt in Q2 as a whole. Imports from Russia and Saudi Arabia increased by 38%yr and 19%yr to 11 Mt and 14 Mt, respectively. Lower imports from Oman (down 24%yr) and Angola (10%yr) were offset by ‘other’ (up 15%yr to 35 Mt).

• China’s imports of crude oil from Australia declined 22%yr to 557 kt in Q2, while import values declined 53%yr to US$269 million.


Oil

unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

–15

Jun–

15

Chi

na im

port

sM

t69

.069

.273

.270

.874

.777

.276

.579

.980

.383

.0

Saud

i Ara

bia

Mt

14.0

13.0

13.9

13.0

12.7

11.5

12.4

13.1

12.8

13.6

Ang

ola

Mt

9.7

10.4

10.5

9.4

10.7

10.2

9.5

10.4

9.9

9.2

Russ

iaM

t6.

06.

46.

16.

07.

57.

88.

09.

88.

610

.9

Iran

Mt

5.0

5.5

5.5

5.4

6.9

8.7

5.8

6.1

6.7

7.9

Om

anM

t5.

65.

76.

87.

46.

08.

57.

67.

77.

86.

5

othe

rM

t28

.728

.230

.429

.531

.030

.533

.332

.934

.635

.0

Chi

na p

rodu

ctio

n

Cru

deM

t17

.752

.351

.453

.251

.352

.252

.053

.952

.253

.8

Gas

olin

eM

t8.

324

.024

.025

.426

.626

.926

.828

.728

.730

.6

Die

sel

Mt

14.8

42.1

42.7

44.0

42.3

42.9

43.5

46.0

43.8

45.6

Chi

nese

impo

rts

from

Aus

tral

iakt

531.

979

8.3

1233

.746

1.8

730.

971

1.9

744.

254

0.3

600.

455

7.2

valu

eU

SDm

n45

2.6

630.

810

52.3

393.

359

9.8

567.

159

4.8

342.

124

7.3

269.

1

Gas

Chi

na p

ipel

ine

impo

rts

Mt

4.5

4.9

5.2

5.4

4.9

5.9

6.0

6.2

6.7

5.7

Chi

na L

NG

impo

rts

kt41

8041

6045

6051

4056

2942

9748

1151

5551

2743

92

Qat

arkt

1932

.714

32.2

1618

.317

84.8

2570

.013

80.5

1328

.714

58.3

1322

.771

1.3

Aus

tral

iakt

842.

397

4.2

833.

990

6.2

842.

590

4.6

1162

.290

2.1

1093

.812

86.3

Indo

nesi

akt

362.

878

8.4

605.

567

6.6

617.

460

8.3

676.

365

2.9

672.

474

5.3

Mal

aysi

akt

648.

464

5.3

679.

068

5.0

842.

969

8.1

622.

682

9.4

820.

011

28.4

othe

rkt

393.

931

9.8

823.

310

87.4

756.

270

5.2

1021

.013

11.7

1218

.452

1.1

Chi

na p

rodu

ctio

nBc

m9.

926

.926

.430

.232

.329

.029

.233

.533

.629

.2

Chi

nese

impo

rts

from

Aus

tral

iakt

842.

397

4.2

833.

990

6.2

842.

590

4.6

1162

.290

2.1

1093

.812

86.3

valu

eU

SDm

n14

3.4

182.

914

5.7

159.

614

6.4

159.

723

9.1

173.

127

0.9

433.

3

Sour

ce: C

EIC

.

Tabl

e 10

: Oil

and

gas

sum

mar

y da

ta


Gas

• LNG import values decreased by 21%yr in Q2 and pipeline values were down by 17%yr.

• As part of efforts to promote market-based pricing in China’s gas industry, the Shanghai Petroleum and Gas Exchange was launched in July. It is expected that 5–6 bcm of gas futures contracts will be exchanged through the platform in H2 2015.

• China’s gas consumption increased by 2.1%yr to around 91 bcm in H1 2015.

• China began construction of its part of the ‘Power of Siberia’ gas pipeline that will run almost 4000 kilometres from Heilongjiang province to Shanghai.

Gas unit values in China

100

200

300

400

500

600

700

Jun-08 Sep-09 Dec-10 Mar-12 Jun-13 Sep-14

USD/t

total gas LNG pipeline

Source: CEIC.

Gas use by sector: China

Industry31%

Residential30%

other17%

Transport and agriculture

13%

Services9%

Source: IEA

Gas use by sector: World

Industry36%

Residential29%

Services13%

Other14%

Transport7%

Agriculture1%

Source: IEA

Figure 88: Gas unit values in China

Figure 89: Gas use by sector: World Figure 90: Gas use by sector: China

Gas use and supply by country

other non-

OECD33%

USA21%

Russia17%

other OECD10%

Qatar5%

Iran5%

Canada5%

China4%

Production

Other Non-OECD28%

USA22%

other OECD21%

Russia12%

China6%

Iran5%

Japan3%

Saudi Arabia

3%

Consumption

Source: BP

Gas demand per capita

0.0

0.5

1.0

1.5

2.0


China IndiaJapan South KoreaUSA

Consumption toe per capita

Sources: IEA, IMF

Figure 92: Gas use and supply by countryFigure 91: Gas demand per capita


• China’s LNG imports increased by 2%yr to 4.4 Mt in Q2. Pipeline imports declined by 3.9%yr to 5.7 Mt. LNG imports from Malaysia increased 62%yr to 1.1 Mt, with lower prices arguably lifting demand from that source, while imports from Qatar declined 48%yr to 711 kt.

• LNG imports from Australia increased 42%yr to 1.3 Mt in Q2. The value of these imports increased 171%yr to US$433 million. The Queensland Curtis LNG project began operation in Q2 and is expected to provide China with up to 3.6 Mt of LNG a year for the next 20 years. China National Offshore Oil Corporation (CNOOC) is the second largest investor in the project.

World gas exports by country

ROW23%

Russia22%

Qatar12%

other Asia Pacific

12%

Norway10%

other Africa8%

Canada8%

Netherlands5%

Source: BP.

Figure 96: World gas exports by country

China’s gas imports by type

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0


Mt

LNG Pipeline

Source: CEIC

Chinese LNG imports from Australia

0

30

60

90

120

150

180

0

0.1

0.2

0.3

0.4

0.5

0.6


Mt USDmn

volume (lhs)value (rhs)

Source: CEIC.

World gas imports by country

other Europe

38%

other Asia Pacific12%

Japan11%

ROW11%

Germany9%

United States

8%

Italy6%

China5%

Source: BP

Figure 93: China’s gas imports by type

Figure 95: Chinese LNG imports from Australia

Figure 97: World gas imports by country

Figure 94: Chinese LNG imports by source

Chinese LNG imports by source

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8


MtQatar Australia IndonesiaMalaysia Other

Source: CEIC


UraniumUranium prices

0

100

200

300

400

500

600

700

800

0

20

40

60

80

100

120

140

160

Oct 04 Oct 06 Oct 08 Oct 10 Oct 12 Oct 14

index USD/lb

USD price (lhs)

USD price index (rhs)

RMB price index (rhs)

Sources: LME, Bloomberg

China’s uranium imports

0

3000

6000

9000

12000

15000

0

300

600

900

1200

1500

Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15

USDmn

Volume (rhs)

Value (lhs)

Source: CEIC, China Petroleum and Chemical Industry Federation

Tonnes

Uranium use by country

Other31%

United States28%

France15%

China10%

Russia8%

South Korea

8%

Source: World Nuclear Association.

Global uranium output &reserves

Kazakhstan37%

Other20%

Canada15%

Australia12%

Niger8%

Namibia8%

Production

Source: World Nuclear Association, OECD NEA & IAEA.

Kazakhstan12%

Other35%

Canada9%

Australia31%

Niger8%

Namibia5%

Reserves*

*Reasonably Assured and Inferred, recoverable at US$130 per tonne U3O8

Figure 98: Uranium prices

Figure 100: Global uranium output & reserves

Figure 99: China’s uranium imports

Figure 101: Uranium use by country

Table 11: Uranium summary data.

Units Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Uranium spot price U3O

8USD/lb 41 35 35 35 29 32 37 38 36

China nuclear power output bn kWh 24 30 30 27 28 38 37 35 42

Investment in nuclear RMBbn 14 15 20 11 13 14 19 10 11

China uranium imports t 2567 9069 6216 4045 6801 4985 9281 2041 5659

Value USDmn 292 931 677 396 675 482 810 210 587

Source: CEIC, Cameco, The Ux Consulting Company, Trade Tech.


• The bearish market sentiment that has pushed commodity prices lower in 2015 has had little impact on uranium due to its relatively tighter market balance. Nevertheless, the average uranium spot price fell 5%qtr in Q2 to US$36/lb.

• China’s nuclear power generation has grown substantially in the past 12 months following a period of heavy investment. Nuclear power output increased 48%yr to 42 billion kWh in Q2.

• Investment in new nuclear power generating capacity in China is starting to taper. In Q2 total investment decreased 18%yr to RMB11 billion.

• China’s uranium imports totalled 5659 tonnes in Q2, worth US$587 million. Those figures are down 17%yr and 13%yr, respectively.

China’s nuclear power construction expenditure

0

5

10

15

20

25

30

Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15

RMB bn

Source: CEIC

Figure 105: China’s nuclear construction spending

New capacity: planned & underway

0

20000

40000

60000

80000

China OtherAsia

EasternEurope

NorthAmerica

WesternEurope

Africa -Middle

East

SouthAmerica

MWe

Under Construction

Planned

Source: World Nuclear Association

Growth in world energy by source

0

1

2

3

4

Oil Gas Coal Nuclear Other Total

1990 to 2010

2010 to 2030Source: BP

Compound annual growth rate %

Figure 102: Chinese nuclear generation growth

Figure 104: Chinese nuclear generation capacity

Figure 106: Growth in world energy by source

Figure 103: New capacity: planned & underway

Chinese nuclear generation capacity

0

2

4

6

8

10

12

14

16

18

20

1998 2000 2002 2004 2006 2008 2010 2012 2014

Million kW

Source: CEIC

China’s nuclear generation growth keep

-5

0

5

10

15

20

25

30

-20

0

20

40

60

80

100

120

Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15

Nuclear generation (lhs)

Total electricity generation (rhs)

%yr* %yr*

Sources: CEIC, Westpac. * 12mma.


Gold

• Lower gold consumption and expectations that the US Federal reserve will raise interest rates later this year, which has led the US dollar higher, contributed to a decline in average gold prices in Q2. Even the recent turmoil in Europe did little to assist gold prices.

• In Q2 LBMA gold prices averaged US$1194 an ounce, down 2.1%qtr. On 20 July the gold price hit a 5½ year low of US$1096/oz.

• On 17 July the Chinese Government announced its gold reserves had increased by 60% to 1658 tonnes since it last released data on its holding in 2009. While that is a substantial increase, the announcement fell well short of analysts’ expectations. Shortly after the announcement, trading on the Shanghai Gold Exchange surged.

• ETF stockholdings decreased 0.6%qtr and 7.3%yr as of the end of June, to 1594 tonnes. Lower ETF holdings suggest a possible decline in interest amongst investors in gold backed financial assets.

• According to the World Gold Council, world gold consumption declined 5%yr in Q1 2015 to 854 tonnes. Jewellery accounted for 45% of total gold consumption in Q1 2015. China’s bar and coin consumption increased 3%yr to 60 tonnes, while its jewellery consumption decreased 10%yr to 213 tonnes.

Figure 95: Gold prices, London & Shanghai

0

100

200

300

400

500

0

400

800

1200

1600

2000

Jul 05 Jul 07 Jul 09 Jul 11 Jul 13 Jul 15

RMB/gUSD/oz

LBMA

SGE

Sources: LBMA, Bloomberg

Figure 96: Gold imports via Hong Kong

0

75

150

225

300

375

0

50

100

150

200

250

Jul-11 Feb-12 Sep-12 Apr-13 Nov-13 Jun-14 Jan-15

RMB/gtonnes

Import Volume (lhs)

SGE Price (rhs)

Sources: CEIC, Bloomberg.

Figure 107: Gold prices, London & Shanghai

Figure 108: Chinese gold imports via Hong Kong

Table 12: Gold prices (USD/oz unless specified otherwise)

LBMA spot prices Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Quarter average 1632 1417 1330 1272 1292 1290 1282 1201 1219 1194

Quarter end 1597 1235 1329 1206 1295 1317 1225 1185 1184 1172

Quarter high 1693 1600 1418 1353 1383 1328 1339 1249 1302 1226

Quarter low 1565 1201 1223 1189 1201 1244 1208 1141 1150 1172

Shanghai avg RMB/g 329 286 265 251 256 259 255 238 246 239

Shanghai avg USD/g 53 46 43 41 42 41 41 39 39 38

Sources: LBMA, Bloomberg.


• China’s reported gold imports via Hong Kong were down 25%yr to 360 tonnes for the first five months of 2015. The decline in imports is likely due to the increase in direct gold imports to China, which are not published at present.

• According to the World Metal Statistics gold mine production in China increased 9.6%yr in the first four months of 2015 to 148 tonnes. Chinese companies are seeking global partnerships to expand their resource base.

• Australia’s gold export volumes to China were similar to Q2 2014 at 40.1 tonnes but the value increased 11%yr to $A1977 million, reflecting the lower Australian dollar.

Figure 100: Gold fabrication cons. by country

Other40%

India23%

China28%

USA5%

Turkey3%

Source: World Gold Council.

Figure 112: Gold fabrication cons. by country

Figure 97: Australian gold exports to China

0

5

10

15

20

25

0

250

500

750

1000

1250

Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15

tonnesAUDmnVolume (rhs)

Value (lhs)

Source: ABS

Figure 99: Gold output by country

Other36%

China15%

Other Africa16%

Australia9%

USA7%

Russia7%

South Africa5%

Peru5%

Source: World Bureau of Metal Statistics

Figure 98: Gold exchange traded funds

-20%

-15%

-10%

-5%

0%

5%

10%

15%

-8%

-6%

-4%

-2%

0%

2%

4%

6%


PriceETF

ETF Stocks %mth (lhs)

Price %mth (rhs)

Sources: Bloomberg, LBMA

Figure 101: Gold end-use by sector

Jewellery66%

Physical bar investment

19%

Electronics7%

Official Coins

5%

Industrial and other

3%

Source: World Gold Council.

Figure 109: Australian gold exports to China

Figure 111: Gold output by countryFigure 110: Gold exchange traded funds

Figure 113: Gold end–use by sector


Gol

dun

itM

ar–1

3Ju

n–13

Sep–

13D

ec–1

3M

ar–1

4Ju

n–14

Sep–

14D

ec–1

4M

ar–1

5Ju

n–15

Chi

na im

port

s (v

ia H

ong

Kong

)t

371.

936

5.7

377.

038

1.9

333.

520

4.1

118.

938

9.1

229.

0na

Dom

estic

pro

duct

ion

t90

.390

.311

5.0

120.

396

.410

4.8

140.

710

0.2

110.

7na

Aus

tral

ian

expo

rts

to C

hina

t36

.944

.543

.350

.947

.040

.129

.742

.539

.440

.1

valu

eAU

Dm

n18

45.3

2064

.120

32.0

2254

.321

75.8

1773

.913

17.2

1899

.819

50.0

1976

.6

Silv

erC

hina

impo

rts

t83

.685

.599

.978

.167

.890

.583

.776

.311

7.7

217.

0

Dom

estic

pro

duct

ion

t97

797

797

797

791

891

891

891

891

8na

Sour

ces:

CEI

C, A

BS, W

orld

Met

al S

tatis

tics.

Tabl

e 13

: Gol

d an

d si

lver

sum

mar

y da

ta


Figure 103: Silver output & fabrication demand

Other35%

Mexico22%

China13%

Peru14%

Aust7%

Russia5%

Poland4%

Production

Other32%

USA12%China

24%

India20%

Japan7%

South Korea3%

Germany2%

Fabrication

Source: The Silver Institute, Thomson Reuters GFMS.

Figure 102: Silver prices, London & Changjiang

0

3

6

9

12

15

0

10

20

30

40

50

Feb 09 Feb 10 Feb 11 Feb 12 Feb 13 Feb 14 Feb 15

RMB/gUSD/oz

London Bullion Market spot

Changjiang Silver

Source: Bloomberg

Figure 105: China’s silver end-use by sector

Jewellery20%

Electronics25%

Alloys and Solders

6%Silverware6%

Coins and bars18%

Photographic use4%

other uses21%

Source: The Silver Institute, Thomson Reuters GFMS

Figure 104: China silver import volumes: annual

0

2000

4000

6000

8000

2003 2005 2007 2009 2011 2013

tonnes

Unwrought Powder Semi-manufactured Other

Source: CEIC

Figure 115: Silver output & fabrication demandFigure 114: Silver prices, London & Changjiang

Figure 116: Chinese silver import volumes: annual Figure 117: Silver end–use by sector

Silver

Table 14: Silver prices (USD/oz unless specified otherwise)

LBMA spot prices Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Quarter average 30.1 23.2 21.5 20.8 20.5 19.7 19.7 19.7 16.6 16.5

Quarter end 28.5 19.7 21.7 19.5 19.8 21.0 17.0 15.7 16.7 15.7

Quarter high 32.3 28.0 24.5 22.8 22.0 21.1 21.4 21.4 18.3 17.7

Quarter low 28.4 18.5 18.9 19.1 19.2 18.8 17.0 17.0 15.5 15.7

Changjiang RMB/g 6.11 4.72 4.28 4.24 4.15 4.15 4.22 3.59 3.58 3.54

Changjiang USD/g 0.98 0.76 0.70 0.70 0.68 0.67 0.68 0.59 0.57 0.57

Sources: LBMA, Bloomberg.


Copper

• The average LME copper price increased 3.9%qtr to US$6043/t in Q2. Prices declined in July though, mainly due to mounting concerns over China’s demand amidst bearish sentiment stemming from the stock market turmoil. At the end of July the LME traded at US$5200/t while the SHFE traded at RMB 39,850.

• LME copper inventories at the end of June were 313 kt, down slightly from Q1 but up 102%yr. SHFE inventories were down 54%qtr to 113 kt but they were still up 43%yr.

• The International Copper Study Group expects a copper surplus in 2015. According to their April report, world consumption is forecast to be flat in 2015 at 23 Mt. China’s apparent use is expected to rise just 1% to around 11 Mt.

Figure 106: Copper prices, London & Shanghai

40

45

50

55

60

65

70

75

5

6

7

8

9

10

11

12

Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15

‘000 RMB/t‘000 USD/tLME Spot (lhs)

LME 3mth forward (lhs)

SHFE spot (rhs)


Figure 108: Copper use and supply by country

Other38%

China35%

Chile12%

Japan6%

USA5%

Russia4%

Producers


Other29%

China50%

USA8%

Germany5%

Japan5%

South Korea

3%

Consumers

Figure 107: LME Prices & inventories

100

300

500

700

900

5500

6500

7500

8500

9500

Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14 Apr 15

ktUSD/t

end of month inventories (rhs)LME spot (lhs, month average)

Sources: LME, Bloomberg.

Figure 118: Copper prices, London & Shanghai

Figure 119: LME prices & inventories Figure 120: Copper use and supply by country

Table 15: Copper prices (USD/t unless specified otherwise)

LME spot prices Mar–13 Jun–13 Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Quarter average 7931 7148 7073 7153 7041 6787 6994 6624 5818 6043

Quarter end 7583 6751 7291 7395 6636 6955 6736 6359 6051 5721

Quarter high 8243 7547 7341 7395 7440 7035 7184 6860 6309 6448

Quarter low 7539 6638 6719 6939 6435 6600 6736 6306 5391 5646

3 Month forward 7964 7180 7096 7161 7008 6757 6976 6568 5790 6046

Shanghai avg RMB/t 57189 52778 51690 51545 49731 49328 50273 47525 42391 44074

Shanghai avg USD/t 9161 8473 8438 8465 8164 7915 8156 7729 6799 7104



• China’s refined copper production decreased 7%yr in Q2 to 1.95 Mt. The provinces of Jiangxi and Anhui were the highest producing regions during H1 2015, with 718 kt and 663 kt, respectively.

• In Q2 China’s total copper imports increased 4.4%yr to 1774 kt. Imports from Chile totalled 558 kt, up 3.6%yr. Chile remains the principal single source of China’s copper imports with a 31% market share.

• Australia’s copper export volumes increased 0.7%yr to 124 kt in Q2. Export values increased 7.1%yr to $A944 million.

Figure 113: Copper output by Chinese province

Other Provinces

31%

Jiangxi17%Shandong

14%

Gansu11%

Anhui17%

Yunnan7%

Zhejiang3%

Source: Bloomberg

Figure 124: Copper demand per capita

Figure 109: China’s copper import volumes

0

100

200

300

400

500

600

700

800

Nov 11 Jul 12 Mar 13 Nov 13 Jul 14 Mar 15

kt Other Chile Peru Australia

Scaled by metal content

Sources: Bloomberg, DIS.

Figure 112: Copper demand per capita

0

2

4

6

8

10

12

14

16

18

20


China India Japan South Korea USA

Consumption kgpp

Sources: IMF, World Bureau of Metal Statistics.

Figure 110: Australian copper exports to China

0

100

200

300

400

500

600

700

800

Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-150

10

20

30

40

50

60

70

80AUDmnkt

Volume (lhs)

Value (rhs)

Source: ABS

Figure 121: Chinese copper import volumes

Figure 123: Copper end–use by sectorFigure 122: Australian copper exports to China

Figure 125: Copper output by Chinese province

Figure 111: Copper end-use by sector (2014)

Building construction

43%

Electric and electronic products

19%

Transportation equipment

19%

Consumer and general

products12%

Industrial machinery and

equipment7%

Source: United States Geological Survey.


unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

–15

Jun–

15

Chi

na im

port

skt

1356

1380

1731

1819

1836

1699

1725

1935

1729

1774

Aus

tral

iakt

9715

713

512

816

514

414

015

211

614

2

Chi

lekt

436

383

519

574

542

538

438

629

569

558

Peru

kt17

112

020

021

318

218

219

620

517

219

2

othe

rkt

652

720

877

904

946

834

950

949

872

883

Refin

ed p

rodu

ctio

nkt

1484

1693

1715

1909

1651

1823

2027

2321

1834

1951

Wor

ld s

tock

skt

1297

1319

1107

902

899

694

706

765

1027

na

wee

ks o

f sto

cks

wee

ks3.

43.

32.

72.

12.

21.

61.

61.

72.

5na

Aus

tral

ian

expo

rts

to C

hina

kt10

914

212

315

412

112

312

513

710

912

4

valu

eAU

Dm

n84

499

188

812

0996

288

290

711

0179

394

4

Sour

ces:

Bloo

mbe

rg, W

orld

Met

al S

tatis

tics,

ABS

.

Tabl

e 16

: Cop

per

sum

mar

y da

ta


Aluminium

• In Q2 LME aluminium spot prices averaged $US1765 a tonne, down 2%qtr, due to an ongoing global market surplus. Despite this apparent excess supply LME stocks fell by 9%qtr to 3574 kt. Prices dropped significantly towards the end of the quarter, with prices at the end of June and early July around 16 month lows. The SHFE average price increased 1%qtr to RMB 12,964 in Q2, although it reached historical lows in July of RMB 12,040.

• China’s aluminium production increased by 39%yr to 8 Mt in Q2. Around 27% of production came from Shandong, where significant new capacity came on line, increasing Q2 production by 284%yr. Production also grew strongly in far inland Xinjiang, up 36%yr.

Aluminium prices, LME and Shanghai

10

12

14

16

18

1.0

1.5

2.0

2.5

3.0


‘000 RMB/t ‘000 USD/t

LME Spot (lhs)


SHFE spot (rhs)


Aluminium use and supply by country

Other30%

China49%

Russia7%

Canada6%

USA3%

UAE5%

Producers


Other28%

China49%

USA11%

Germany5%

Japan4% India

3%

Consumers

Aluminium – LME Prices and Inventories

1000

2000

3000

4000

5000

6000

1500

1800

2100

2400

2700

3000

Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15

ktUSD/tend of month inventories (rhs)LME spot (lhs, month average)


Figure 126: Aluminium prices, LME & Shanghai

Figure 127: LME prices & inventories Figure 128: Aluminium use & supply by country

Table 17: Aluminium and Alumina prices (USD/t unless specified otherwise)


Quarter average 2003 1835 1781 1769 1708 1798 1987 1966 1800 1765

Quarter end 1882 1731 1803 1765 1731 1851 1935 1832 1789 1647

Quarter high 2123 1939 1877 1849 1768 1871 2114 2099 1872 1919

Quarter low 1868 1720 1730 1695 1642 1715 1838 1828 1742 1642

3 Month forward 2042 1870 1827 1815 1752 1836 2008 1974 1813 1787


Shanghai avg 2358 2336 2345 2357 2158 2107 2283 2197 2061 2090

Aust FOB Alumina 341 327 318 323 328 317 323 355 342 337

China Alumina RMB/t 2571 2513 2500 2504 2438 2353 2439 2732 2624 2439



• Strong growth in domestic production at a time of modest local needs contributed to a steep rise in China’s aluminium exports. Exports of unwrought aluminium and aluminium products exports grew 28%yr in Q2, to 1.3 Mt.

• China’s aluminium imports were 46 kt in Q2, down 52%yr, as domestic production continued to displace imports. In Q2 imports from Australia were 2.7 kt, which reduced Australia’s share of total imports to 6%, from 22% in Q1.

• Australia’s aluminium exports to China dropped 67%yr, to 3.3 kt in Q2 and export earnings fell by 57%yr to $A9 million.

Chinese aluminium output by province

Other 30%

Xinjiang19% Shandong

24%

Henan11%

Inner Mongolia

9%

Gansu8%

Source: Bloomberg

Figure 133: Aluminium output by province

Chinese aluminium import volumes

0

15

30

45

60

75

90


ktOther RussiaAustralia TaiwanUAE

Source: Bloomberg

0

5

10

15

20

25

30


China India Japan

South Korea USA

Consumption kgpp

Sources: IMF, World Bureau of Metal Statistics

Aluminium demand per head

Figure 118: Australian aluminium exports to China

0

4

8

12

16

20

0

10

20

30

40

50


ktAUDmn

Volume (rhs)

Value (lhs)

Source: ABS

Figure 129: Chinese aluminium import volumes

Figure 132: Aluminium demand per head

Figure 130: Australian aluminium exports to China Figure 131: Aluminium end–use by sectorAluminium end-use by sector (2014)

Transportation manufacturing

38%

Packaging22%

Construction13%

Electrical9%

Machinery8%

Consumer durables

7%

Other3%

Source: United States Geological Survey


• Low aluminium prices and reduced smelting margins led to lower alumina prices in Q2 (FOB Australia). Prices dropped 2%qtr and averaged $US337 a tonne, highlighting the uncertainty in China’s domestic alumina market and recent increases in domestic supply.

• China’s alumina imports totalled 1041 kt in Q2, down 19%yr due to higher domestic supply and moderate consumption growth.

• Alumina imports from Australia decreased 15%yr to 555 kt. Even so, Australia remained the principal source of China’s alumina imports.

China’s alumina output by province (2014)

Henan26%

Shandong26%Shanxi

19%

Guangxi17%

Other12%

Source: Bloomberg

Figure 138: China’s alumina output by province

Alumina Prices

2000

2250

2500

2750

3000

250

300

350

400

450


RMB/tUSD/t

AUS Fob (lhs)

CHN Met grade (rhs)

Source: Bloomberg

China47%

Oceania19%

South America13%

North America6%

Africa & Asia (ex China)

6%

West Europe5%

East & Central Europe

4%

Source: International Aluminium Institute

World alumina output

World alumina trade

Australia45%

Brazil22%

Other18%

USA5%

Ireland5%

Jamaica5%

Exports


Other38%

Canada15%

China19%

Russia12%

Norway8%

USA6%

Imports

Figure 134: Alumina prices

Figure 137: World alumina output

Figure 135: World alumina trade Figure 136: China’s alumina imports

China’s alumina imports

0

100

200

300

400

500

600

700

800


kt

Australia Other Brazil India

Source: Bloomberg

Alumina


• China imported 12.6 Mt of bauxite in Q2, up 91%yr. The market continues to adjust to the prohibition on Indonesian exports, which has removed the historically largest source of imports from the equation since early 2014 (see figure 139), at a time of strongly expanding aluminium production in China.

• Imports from Australia were up 23%yr in Q2 to 4.5 Mt. Imports from Malaysia have increased considerably over the last year, from 154 kt in Q2 2014 to 5.5 Mt in Q2 2015. In Q2 Malaysia became the principal source of China’s bauxite imports, with a market share of 44%, despite having been a negligible provider when Indonesia was still a participant in the trade.

• China continued to invest in developing its domestic bauxite reserves, utilising lower grade deposits to increase domestic supply.

• Bauxite exports from Australia were up to 5 Mt in Q2, an increase of 30%yr. Earnings from bauxite exports increased further, by 82%yr to $A257 million. Export volumes reached a historic high of 2 Mt for the month of May alone.

Figure 142: World bauxite trade

China’s bauxite imports by source

0

1

2

3

4

5

6

7

8

9


MtIndonesia Australia Other India Malaysia

Source: Bloomberg

World bauxite output (2014)

Australia31%

China25%

Other15%

Brazil12%

India8%

Guinea7%


Figure 128: Australia’s bauxite exports to China

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0


10

20

30

40

50

60

70

80

90

100Mt AUDmn

Volume (lhs)Value (rhs)

Source: ABS

Figure 141: World bauxite output

Figure 140: Australia’s bauxite exports to China

World bauxite trade (2014)

Australia28%

Guinea27%

Jamaica16%

Brazil14%

India9%

Other7%

Exports

Source: World Bureau of Metal Statistics,

China53%

USA18%

Other12%

Ireland6%

Spain5%

Canada6%

Imports

Bauxite

Figure 139: China’s bauxite import by source


Alu

min

ium

unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

–15

Jun–

15

Chi

na im

port

skt

67.8

82.8

137.

719

3.0

175.

596

.151

.530

.534

.445

.9

Aus

tral

iakt

14.5

14.3

31.7

31.5

48.0

18.9

7.0

5.6

7.7

2.7

Indi

akt

0.0

2.9

13.1

17.7

19.1

0.7

0.8

1.6

6.6

2.0

Russ

iakt

18.1

28.1

28.9

46.1

29.6

24.2

16.9

2.1

1.5

4.3

othe

rkt

35.2

37.6

64.0

97.7

78.8

52.3

26.8

21.2

18.6

36.8

Refin

ed p

rodu

ctio

nkt

5215

5365

5626

5839

5755

5747

6045

6393

7205

8010

Wor

ld s

tock

skt

7400

7439

7089

7171

7356

7185

6738

6428

4807

na

wee

ks o

f sto

cks

wee

ks8.

78.

47.

98.

08.

27.

67.

06.

44.

6na

Aus

tral

ian

expo

rts

to C

hina

kt10

1228

3534

105

63

3

valu

eAU

Dm

n23

2562

7673

2114

189

9

Alu

min

a

Chi

na im

port

skt

1034

.961

2.5

829.

313

54.4

1483

.712

80.7

1158

.113

53.9

1072

.310

41.1

Aus

tral

iakt

1028

.560

2.7

766.

511

77.0

1183

.765

4.9

523.

079

0.7

455.

455

4.5

Chi

nese

pro

duct

ion

Mt

10.3

11.0

11.6

11.2

11.2

11.5

11.7

12.6

13.3

14.2

Baux

ite

Chi

na im

port

sM

t14

.019

.021

.117

.613

.16.

68.

48.

410

.112

.6

Aus

tral

iaM

t2.

74.

04.

23.

43.

13.

74.

74.

24.

94.

5

Indo

nesi

aM

t9.

212

.414

.712

.48.

70.

10.

00.

00.

00.

0

Aus

tral

ian

expo

rts

to C

hina

Mt

2.8

4.1

4.2

4.0

2.5

3.9

4.7

5.0

5.3

5.1

valu

eAU

Dm

n82

.013

8.0

149.

514

9.0

87.0

140.

918

1.7

227.

526

6.1

256.

9

Sour

ces:

Bloo

mbe

rg, W

orld

Met

al S

tatis

tics,

ABS

.

Tabl

e 18

: Alu

min

ium

, alu

min

a an

d ba

uxite

sum

mar

y da

ta


Nickel

• The LME nickel price averaged US$13,008 in Q2, down 9%qtr, because of historically high inventories, an oversupply of refined nickel and generally bearish commodity market sentiment.

• LME stocks reached a record high of 470 kt in early June despite a long held consensus of an aggregate shortage in the wake of the Indonesian unprocessed ore ban.

• China’s port stocks of nickel ore remained around 18 Mt at the end of Q2. In contrast to the uplift in LME warehouse stocks, China’s port stocks steadily declined in early 2015 before steadying from March onwards.

Nickel prices, London and Shanghai

40

80

120

160

200

5

10

15

20

25


‘000 RMB/t‘000 USD/t

LME Spot (lhs)LME 3mth forward (lhs)SHFE Spot (rhs)

Sources: LME; Bloomberg

Nickel end use and supply by country

China34%

Other31%

Russia13%

Japan9%

Australia7%

Canada6%

Producers


China45%

Other27%

Japan9%

USA9%

South Korea

6%

Germany4%

Consumers

LME prices and inventories

75

175

275

375

475

10

15

20

25

30

Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15

kt‘000 USD/t

end of month inventories (rhs)LME spot (lhs, month average)


Figure 143: Nickel prices, London & Shanghai

Figure 144: LME prices & inventories Figure 145: Nickel use and supply by country

Table 19: Nickel prices (USD/t unless specified otherwise)


Quarter average 17314 14963 13916 13909 14643 18465 18576 15799 14338 13008

Quarter end 16540 13680 13860 13970 15735 18715 16505 14935 12460 11680

Quarter high 18600 16390 14775 14635 16225 21200 19795 16825 15455 14415

Quarter low 16425 13560 13160 13270 13365 15780 16505 14650 12460 11680

3 Month forward 17387 15039 13996 13979 14693 18512 18669 15877 14400 13055





• China’s refined nickel production increased by 7%yr to 141 kt in the first five months of 2015. Production in Gansu increased 5%yr to 59 kt while Jiangxi saw an 8%yr decrease to 14.6 kt.

• The value of China’s nickel imports increased 18%yr to US$1.9 billion in Q2. The rise was supported by imports from Russia which increased 63%yr to US$655 million and as a result displaced the Philippines as China’s primary supplier. China’s imports from the Philippines fell 22%yr to US$562 million in Q2.

• In Q2 the value of Australia’s nickel total exports fell 1%yr to $A923 million.

Nickel output by province

Other42%

Gansu39%

Jiangxi11%

Guangxi5%

Xinjiang3%

Source: Bloomberg

Figure 149: Nickel demand per capita

Chinese nickel import values

0

250

500

750

1000

1250

Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14 Apr 15

USDmn

Indonesia Russia PhilippinesAustralia Other Canada

Source: Bloomberg

Nickel end-use by sector

Stainless and alloy

steel production

45%Nonferrous alloys and

superalloys43%

Electroplating7%

Other5%


Nickel demand per capita

0.0

0.5

1.0

1.5

2.0

2.5


China

India

Japan

South Korea

USA

Consumption kgpp


Figure 146: Chinese nickel import values

Figure 148: Nickel end–use by sectorFigure 147: Nickel output by province

Figure 150: World trade in nickelWorld trade in nickel

Russia40%

Other18%

Australia15%

Canada13%

Norway9%

Singapore5%

Exports


Other37%

China21%

USA18%

Germany12%

Singapore6%

India6%

Imports


unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

–15

Jun–

15

Chi

na im

port

sU

SDm

n21

4918

4217

6620

9515

8516

2523

1412

5190

419

18

Aus

tral

iaU

SDm

n17

218

911

911

267

112

9971

8187

Cana

daU

SDm

n14

310

786

8996

8510

257

7210

7

Russ

iaU

SDm

n45

625

727

023

332

640

239

614

619

365

5

Indo

nesi

aU

SDm

n95

262

952

191

471

228

81

00

Phili

ppin

esU

SDm

n16

844

248

244

817

172

013

7569

429

456

2

othe

rU

SDm

n25

821

728

729

921

227

633

428

226

550

7

Refin

ed p

rodu

ctio

n*kt

6860

6987

7590

9910

282

na

LME

stoc

kskt

186

207

248

282

284

305

358

415

433

457

wee

ks o

f sto

cks

wee

ks5.

56.

37.

27.

68.

59.

110

.713

.821

.5na

Aus

tral

ian

expo

rts

to C

hina

kt60

6667

.259

.248

.750

5762

62na

valu

eAU

Dm

n85

194

682

173

673

192

910

0294

887

392

3

Sour

ces:

Bloo

mbe

rg, W

orld

Met

al S

tatis

tics,

Inte

rnat

iona

l Nic

kel S

tudy

Gro

up.,

CEI

C

* N

ote:

Refi

ned

prod

uctio

n da

ta s

erie

s no

long

er in

clud

es s

mel

ter o

utpu

t and

has

bee

n re

vise

d.

Tabl

e 20

: Nic

kel s

umm

ary

data


Zinc

• In Q2 the LME zinc spot price averaged $US2190, up 5%qtr, following a strong price recovery from the start of the quarter. However, towards the end of Q2 and into July prices declined in response to a loss of confidence precipitated by financial volatility.

• LME zinc stocks continued to decline in Q2 and dropped 10%ytd to 436 kt as of the end of July. This historical low for LME stocks coincided with several recent mine closures. However, stocks have been stable or rising in other warehousing facilities such as the SHFE, where they were up 29%qtr to 180 kt.

• In Q2 the SHFE zinc price averaged RMB 16,399, up 2%qtr, while in July prices dropped to the lowest point in twelve months.

Figure 139: Zinc prices, London and Shanghai

10

15

20

25

1.5

2.0

2.5

3.0


‘000 RMB/t ‘000 USD/t

LME Spot (lhs)


SHFE spot (rhs)


Figure 141: Zinc use and supply by country (2014)

China43%

Other36%

South Korea7%

India5%

Canada5% Japan

4%

Producers


China47%

Other32%

USA7%

South Korea

5%

India5% Japan

4%

Consumers

Figure 140: LME prices & inventories

400

600

800

1000

1200

1400

1500

1700

1900

2100

2300

2500


ktUSD/tend of month inventories (rhs)

LME spot (lhs, month average)Sources: LME, Bloomberg.

Figure 151: Zinc prices, London & Shanghai

Figure 152: LME prices & inventories Figure 153: Zinc use and supply by country

Table 21: Zinc prices (USD/t unless specified otherwise)


Quarter average 2033 1840 1859 1907 2029 2073 2311 2235 2080 2190

Quarter end 1871 1823 1877 2086 1981 2205 2290 2167 2076 1994

Quarter high 2188 1925 1956 2116 2156 2205 2420 2335 2184 2405

Quarter low 1854 1784 1793 1828 1942 2073 2194 2114 1985 1994

3 Month forward 2057 1875 1896 1932 2027 2079 2314 1932 2092 2192





• China’s refined zinc output continued to grow in Q2, up 15%yr to 1.6 Mt, as a result of higher production in almost all provinces. Production in Inner Mongolia was up 33%yr to 139 kt, Gansu rose 65%yr to 111 kt and Shaanxi increased 13%yr to 244 kt.

• In the first five months of the year China’s imports of zinc ores and concentrates increased 52%yr to 504 kt. Imports from Australia increased 30%yr to 192 kt, followed by imports from Peru, which increased 127%yr to 173 kt.

• Australia’s zinc exports (by metal content) to China increased 106%yr to 187kt, with export earnings growing 101%yr to $A303 million in Q2.

Figure 146: Zinc output by province

Other28%

Hunan21%Yunnan

19%

Shaanxi15%

Guangxi8%

Inner Mongolia

9%

Source: Bloomberg

Figure 157: Zinc demand per capita

Figure 142: China’s zinc import volumes

0

50

100

150

200

250

Jan 12 Sep 12 May 13 Jan 14 Sep 14 May 15

kt

Other Australia Kazakhstan Peru Turkey

Source: ILZSG


Figure 144: Australian zinc exports to China

0

30

60

90

120

150

180

0

20

40

60

80

100

120


AUDmnkt

Volume (lhs) Value (rhs) Source: ABS

Figure 145: Zinc demand per capita

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0


China

India

Japan

South Korea

USA

Consumption kgpp


Figure 154: Chinese zinc import volumes

Figure 156: Australian zinc exports to China

Figure 158: Zinc output by province

Figure 143: China’s zinc imports by type

0

50

100

150

200

250

Jan 12 Sep 12 May 13 Jan 14 Sep 14 May 15

kt

Ores and concentrates (metal content) Refined

Source: ILZSG


Figure 155: Chinese zinc imports by type


unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

–15

Jun–

15

Chi

na im

port

skt

347.

037

4.4

345.

542

7.9

431.

034

7.2

353.

037

0.3

391.

0na

Aus

tral

iakt

119.

086

.375

.114

2.8

138.

511

9.5

111.

412

5.1

116.

7na

Kaza

khst

ankt

46.5

35.1

41.6

39.6

49.9

34.1

52.5

40.6

36.6

na

Peru

kt65

.058

.741

.255

.657

.565

65.7

98.5

117.

0na

Turk

eykt

12.4

11.5

16.2

9.5

5.5

5.3

5.5

3.3

3.1

na

othe

rkt

104.

118

2.7

171.

518

0.3

179.

612

3.3

117.

910

2.8

117.

6na

Refin

ed p

rodu

ctio

nkt

1241

.513

25.7

1340

.714

44.6

1259

.314

05.6

1508

.116

07.3

1458

.116

12.7

Wor

ld s

tock

skt

1903

1757

1589

1472

1511

1283

1330

1192

1108

na

wee

ks o

f sto

cks

wee

ks8.

27.

06.

25.

66.

24.

94.

94.

54.

5na

Aus

tral

ian

expo

rts

to C

hina

kt11

015

511

619

011

991

9020

211

318

7

valu

eAU

Dm

n17

621

417

528

219

515

215

034

318

930

3

Sour

ces:

Bloo

mbe

rg, W

orld

Met

al S

tatis

tics,

Inte

rnat

iona

l Lea

d an

d Zi

nc S

tudy

Gro

up, A

BS.

Tabl

e 22

: Zin

c su

mm

ary

data


LeadFigure 148: China’s lead import volumes

0

20

40

60

80

100

120

140


ktOther Peru USA

Russia AustraliaSource: ILZSG

Figure 147: LME prices & inventories

100

175

250

325

400

475

1500

1800

2100

2400

2700

3000

Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15

ktUSD/tend of month inventories (rhs)

LME spot (lhs, month average)Sources: LME, Bloomberg

Figure 150: World trade of lead

Other49%

Australia12%

South Korea12%

Canada11%

Belgium8%

Mexico8%

Exports


Other47%

USA28%

South Korea

8%

Germany6%

India6%

Spain5%

Imports

Figure 149: Australia’s lead exports to China

0

20

40

60

80

100

120

0

5

10

15

20

25

30


kt AUDmn

volume (lhs) value (rhs) Source: ABS

Figure 160: Chinese lead import volumesFigure 159: LME prices & inventories

Figure 161: Australian lead exports to China Figure 162: World trade in lead

Table 23: Lead prices (USD/t unless specified otherwise).


Quarter average 2301 2053 2102 2111 2106 2096 2181 2000 1806 1942

Quarter end 2094 2058 2075 2206 2041 2129 2083 1853 1808 1754

Quarter high 2448 2247 2238 2259 2212 2160 2269 2095 1882 2140

Quarter low 2089 1949 2017 2027 2008 2016 2051 1814 1696 1742

3 Month forward 2314 2066 2116 2134 2127 2120 2194 2009 1817 1952





unit

Mar

–13

Jun–

13Se

p–13

Dec

–13

Mar

–14

Jun–

14Se

p–14

Dec

–14

Mar

–15

Jun–

15

Chi

na im

port

skt

194.

116

4.2

227.

924

2.5

224.

021

3.8

284.

827

3.0

220.

4na

Aus

tral

iakt

12.6

13.4

25.7

29.6

49.6

28.8

47.8

52.0

39.1

na

Peru

kt20

.317

.710

.89.

017

.62.

618

.326

.118

.4na

Russ

iakt

20.7

27.4

30.9

40.0

23.1

25.9

14.8

34.2

23.6

na

USA

kt28

.00.

144

.046

.56.

126

.666

.967

.825

.5na

Mex

ico

kt11

.99.

27.

06.

76.

813

.68.

917

.313

.5na

othe

rkt

100.

696

.411

1.4

110.

612

0.8

116.

312

8.1

75.6

100.

3na

Refin

ed p

rodu

ctio

nkt

1074

.012

02.6

1152

.011

40.8

1055

.711

05.2

1050

.510

64.7

995.

210

71.6

Wor

ld s

tock

skt

680

600

603

586

562

542

577.

356

0.1

546.

4na

wee

ks o

f sto

cks

wee

ks3.

53.

03.

02.

92.

82.

63.

02.

82.

9na

Aus

tral

ian

expo

rts

to C

hina

kt18

2822

5246

6455

5934

33

valu

eAU

Dm

n27

5947

9786

105

9612

672

77

Sour

ces:

Bloo

mbe

rg, W

orld

Met

al S

tatis

tics,

Inte

rnat

iona

l Lea

d an

d Zi

nc S

tudy

Gro

up, A

BS.

Tabl

e 24

: Lea

d su

mm

ary

data


China’s tin output by province

Yunnan58%Hunan

24%

Jiangxi10%

Guangxi8%

Other0%

Source: Bloomberg

Figure 168: China’s tin output by province

LME prices and inventory

5

10

15

20

25

30

10

15

20

25

30

35


kt‘000 USD/t

end of month inventories (rhs)

LME spot (lhs, month average)


Tin use by sector

Cans and containers

23%

Construction18%

Transport equipment

17%

Electrical12%

Other30%


World tin producers and consumers (no change)

Other13%

China51%

Indonesia20%

Bolivia5%

Brazil4%

Peru7%

Producers


Other26%

China50%

USA8%

Japan7%

Germany5%

South Korea

4%

Consumers

Tin prices

100

150

200

250

300

10

15

20

25

30


‘000 RMB/t‘000 USD/tLME Spot (lhs)


SHFE spot (rhs)


Figure 164: LME prices and inventory

Figure 167: Tin use by sector

Figure 165: World tin producers and consumers

Figure 163: Tin prices

Figure 166: China’s tin imports by source

China Tin Imports

0

1

2

3

4

5


kt

Other Indonesia Singapore South Korea Taiwan

Source: Bloomberg

Tin


World molybdenum output

China43%

USA21%

Chile16%

Other9%

Peru6%

Mexico5%


Figure 174: World molybdenum output

China’s molybdenum ore imports

0

10

20

30

40

50

60

0.0

0.5

1.0

1.5

2.0

2.5

3.0


USDmnkt

Volume (lhs)

Value (rhs)

Source: CEIC

China’s molybdenum production

0

2

4

6

8

10

12

14


kt

Source: CEIC, DIS

China’s molybdenum articles exports

0

5

10

15

20

25

30

35

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7


USDmnktVolume (lhs)Value (rhs)

Source: CEIC

Figure 170: China’s molybdenum ore imports

Figure 173: China’s molybdenum production

Figure 171: China’s molybdenum articles exports Figure 172: China’s molybdenum ore exports

China’s molybdenum ore exports

0

7

14

21

28

35

42

0.0

0.5

1.0

1.5

2.0

2.5

3.0



Source: CEIC

Molybdenum

Molybdenum prices

10

15

20

25

30

35

40


‘000 USD/t

LME Spot


Figure 169: Molybdenum prices


China’s tungsten product exports

0.0

0.5

1.0

1.5

2.0

2.5

3.0


20

40

60

80

100

120kt USDmn

Volume (rhs)Value (lhs)

Source: Bloomberg

Figure 180: China’s tungsten output (metal content)

China’s tungsten articles imports

0

3

6

9

12

15

18

21

0

10

20

30

40

50

60

70


USDmntonnes

Volume (lhs)

Value (rhs)

Source: CEIC

World tungsten output

China 87%

Russia3%

Other4%

Canada3%

Rwanda2%

Bolivia1%


China’s tungsten and articles exports

0

4

8

12

16

20

24

28

32

36

0

50

100

150

200

250

300

350

400

450


USDmntonnes

Volume (lhs)

Value (rhs)

Source: CEIC

China’s tungsten ore imports

0

4

8

12

16

20

24

0.0

0.2

0.4

0.6

0.8

1.0

1.2



Source: CEIC

Figure 176: China’s tungsten articles imports

Figure 179: World tungsten output

Figure 177: China’s tungsten and articles exports

Figure 175: China’s tungsten ore imports

Figure 178: China’s tungsten products exports

China’s tungsten output (metal content)

0

2

4

6

8

10

12


ktSource: CEIC, DIS

Tungsten


Cobalt use by sector

Superalloys47%

Chemical applications

27%

Metallic applications

17%

Cemented carbides

9%


Figure 186: Cobalt use by sector

China’s cobalt ores imports

0

15

30

45

60

0

8

16

24

32

Jan-12 Oct-12 Jul-13 Apr-14 Jan-15

USDmnkt

Volume (lhs)

Value (rhs)

Source: CEIC

World cobalt refined output

China46%

Other24%

Finland13%

Canada 6%

Zambia5%

Australia6%

Source: World Metal Statistics

China’s cobalt and articles imports

0

25

50

75

100

125

0

5

10

15

20

25

Jan-12 Oct-12 Jul-13 Apr-14 Jan-15

USDmnktVolume (lhs) Value (rhs)

Source: CEIC

Figure 182: China’s cobalt ore imports

Figure 185: World cobalt refined output

Figure 183: China’s cobalt articles imports Figure 184: World cobalt mine outputWorld cobalt mine output

Congo50%

Other26%

Canada6%

China6%

Russia6%

Australia6%


Cobalt

Cobalt Prices - daily

150

200

250

300

350

400

20

25

30

35

40

45



LME Spot (lhs)


SHFE spot (rhs)


Figure 181: Cobalt prices


World antimony mine output

China78%

Other8%

Tajikistan5%

Russia4%

Bolivia4%

Myanmar1%


Figure 192: World antimony mine output

China’s antimony ore imports

0

6

12

18

24

30

0

2

4

6

8

10


USDmnkt

Volume (lhs)

Value (rhs)

Source: CEIC

China’s antimony mine output

0

5

10

15

20

25

30

35

40

45


kt

Source: CEIC

China’s unwrought antimony exports

0

5

10

15

20

25

30

0.0

0.5

1.0

1.5

2.0

2.5

3.0


USDmnkt

Volume (lhs)

Value (rhs)

Source: CEIC

Antimony prices

40

60

80

100

120

6

9

12

15

18



Metal Bulletin China Free Market (lhs)

SHFE spot (rhs)

Source: Bloomberg

Figure 188: China’s antimony ores imports

Figure 191: China’s antimony mine output

Figure 189: China’s unwrought antimony exports

Figure 187: Antimony prices

Figure 190: Australian antimony exports to China

Australian antimony exports to China

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-150.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0kt AUDmn

volume(lhs)

value (rhs)

Source: ABS

Antimony


Autocatalysts37%

Jewellery31%

Glass7%

Chemical6%

Investment6%

Electrical3% Medical and

biomedical3%

Petroleum3%

Other4%


Platinum end uses by sectorFigure 198: Platinum end use by sector

Palladium prices

400

500

600

700

800

900

1000

100

120

140

160

180

200

220


RMB/gUSD/troy oz

Spot (lhs)SHFE spot (rhs)

Source: Bloomberg

World platinum output

South Africa66%

Russia17%

Zimbabwe9%

Canada4%

USA3%

Other1%


China’s platinum Imports

0

2

4

6

8

10

12

14


tonnesOther Germany JapanRussia South Africa Switzerland

Source: Bloomberg

Figure 194: Palladium prices

Figure 197: World platinum output

Figure 195: China’s platinum imports Figure 196: China’s platinum exports

China’s platinum exports

0

5

10

15

20

25

30

0

100

200

300

400

500

600


USDmnkg

Volume (lhs)

Value (rhs)

Source: Bloomberg

Platinum & Palladium

Platinum prices

900

1000

1100

1200

1300

1400

1500

1600

1700

1800


USD/troy oz

Spot

Source: Bloomberg

Figure 193: Platinum prices


Australian ilmenite exports to China

0

10

20

30

40

50

0

50

100

150

200

250

H109 H110 H111 H112 H113 H114 H115

%kt

Volume (lhs)

Share to China (rhs)

Source: Based on ABS

Figure 204: Australian ilmenite exports to China

China’s titanium dioxide exports

0

25

50

75

100

125

150

0

10

20

30

40

50

60

Apr-12 Jan-13 Oct-13 Jul-14 Apr-15

USDmnkt

Titanium white Value (rhs)Source: CEIC

Australian zirconium exports to China

0

10

20

30

40

50

60

70

80

0

50

100

150

200

250

300

350

400

H109 H110 H111 H112 H113 H114 H115

%kt

Volume (lhs) Share to China (rhs)


Aust titanium dioxide exports to China

0

3

6

9

12

15

18

21

0

1

2

3

4

5

6

7


AUDmnkt

Volume (lhs)

Value (rhs)

Source: ABS

China’s titanium dioxide imports

0

18

36

54

72

90

0

5

10

15

20

25

Apr-12 Jan-13 Oct-13 Jul-14 Apr-15

USDmnktTitanium whiteOtherValue (rhs)

Source: CEIC

Figure 200: China’s titanium dioxide exports

Figure 203: Australian zirconium exports to China

Figure 201: Aust titanium dioxide exports to China

Figure 199: China’s titanium dioxide imports

Figure 202: Australian rutile exports to ChinaAustralian rutile exports to China

0

4

8

12

16

20

24

28

32

0

5

10

15

20

25

30

35

40

H109 H110 H111 H112 H113 H114 H115

%kt

Volume (lhs)

Share to China (rhs)


Mineral Sands


Yttrium oxide exports

0

4

8

12

16

20

0

0.1

0.2

0.3

0.4

0.5

Mar-12 Dec-12 Sep-13 Jun-14 Mar-15

USmnKt

Volume (lhs)

Value (rhs)

Source: CEIC

Figure 210: Yttrium oxide exports

Cerium oxide & hydroxide exports

0

3

6

9

12

15

18

21

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7


USmnKt

Volume (lhs)

Value (rhs)

Source: CEIC

Europium oxide exports

0

5

10

15

20

25

30

35

0

0.001

0.002

0.003

0.004

0.005

0.006

0.007


USmnKt

Volume (lhs)

Value (rhs)

Source: CEIC

Lanthanum oxide exports

0

13

25

38

50

63

75

88

100

0

0.5

1

1.5

2

2.5

3

3.5

4


USmnKt

Volume (lhs)

Value (rhs)

Source: CEIC

Figure 206: Cerium oxide & hydroxide exports

Figure 209: Europium oxide exports

Figure 207: Lanthanum oxide exports Figure 208: Neodymium oxide exports

Neodymium oxide exports

0

4

8

12

16

20

0

0.04

0.08

0.12

0.16

0.2


USmnKt

Volume (lhs)

Value (rhs)

Source: CEIC

China’s exports of rare earth oxidesChina’s total rare earth oxides exports

0

1

2

3

4

5

6

Mar-12 Mar-13 Mar-14 Mar-15

Kt

Cerium Oxide and HydroxideLanthanum OxideYttrium OxideNeodymium OxideEuropium Oxideother

Source: CEIC

Figure 205: China’s total rare earth oxides exports


World cadmium consumption

China33%

Belgium31%

Other15%

Japan12%

Sweden6%

USA3%


Figure 216: World cadmium consumption

China’s manganese ore imports

100

150

200

250

300

350

400

600

850

1100

1350

1600

1850

2100

Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

USDmnkt

Volume (lhs) Value (rhs)Source: Bloomberg

World cadmium production

China33%

Other30%

South Korea17%

Japan8%

Kazakhstan6%

Mexico6%


Australian manganese exports to China

0

20

40

60

80

100

120

140

160

0

100

200

300

400

500

600

700

800

Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14

AUDmnkt

Volume (lhs) Value (rhs)

Source: ABS

Manganese and Cadmium Prices

50

100

150

200

250

300

350

0

5

10

15

20

25

30


‘000 USD/t‘000 RMB/tMaganese - Shanghai price (lhs)

Metal Bulletin Cadmium price (rhs)

Source: Bloomberg

Figure 212: China’s manganese ore imports

Figure 215: World cadmium production

Figure 213: Australian manganese exports to China

Figure 211: Manganese & cadmium prices

Figure 214: World manganese mine outputWorld Manganese mine output

China26%

South Africa26%

Other22%

Australia14%

Gabon7%

Brazil5%


Manganese & Cadmium


Shares of world magnesium output

China89%

USA4%

Russia3%

Israel3%

Brazil1%


Figure 223: Shares of world magnesium output

World diamond imports

India38%

UAE17%

China4%

Israel3%

other9%

Volume

European Community

29%

India30%

UAE11%

UAE9%

Israel9%

Botswana7%

China5%

Value

European Community

28%

Source: Kimberley Process Certification Scheme

China’s magnesium exports

35

50

65

80

95

110

125

10

15

20

25

30

35

40


USDmnkt

Volume (lhs)

Value (rhs)

Source: CEIC

World diamond output

Russia41%

Other11%

Congo, Democratic Republic of

8%

Canada6%

Australia5%

Zimbabwe3%

Volume

Botswana26%

Russia34%

Canada9%

Angola9%

Other6%

South Africa

6%

Namibia5%

Value

Botswana33%


Figure 218: World diamond imports

Figure 221: China’s magnesium exports

Figure 219: World diamond output Figure 220: Magnesium pricesMagnesium Prices

5

10

15

20

25

1800

2200

2600

3000

3400

Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15

‘000 RMB/tUSD/tonne

Metal Bulletin Spot (lhs)

SHFE spot (rhs)

Source: Bloomberg

Diamonds & MagnesiumWorld diamond exports

UAE16%

India8%

Russia9%

Botswana12%

Congo, Republic

of3%

Other24%

VolumeUAE14%

Botswana16%

Russia8%

Israel7%

Switzerland5%

Other23%

ValueEuropean

Community29%

European Community

27%


Figure 217: World diamond exports


Table 25: China mineral and energy import summary

unit Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Iron ore Mt 216.7 219.1 222.0 235.3 242.1 233.6 227.1 226.0

from Australia Mt 111.8 112.9 118.2 138.2 149.4 142.7 144.4 146.8

Australian share % 52 52 53 59 62 61 64 65

Thermal coal Mt 60.9 67.6 71.0 58.1 49.7 50.4 38.1 40.1



Metallurgical coal Mt 19.4 20.7 13.0 18.1 13.4 18.0 10.9 10.7



Aluminium kt 137.7 193.0 175.5 96.1 51.5 30.5 34.4 45.9

from Australia kt 31.7 31.5 48.0 18.9 7.0 5.6 7.7 2.7


Alumina kt 829 1354 1484 1281 1158 1354 1072 1041

from Australia kt 767 1177 1184 655 523 791 455 555


Bauxite Mt 21.1 17.6 13.1 6.6 8.4 8.4 10.1 12.6



Copper kt 1731 1819 1836 1699 1725 1935 1729 1774



Table 25 continued on page 69


Table 25 continued:

unit Sep–13 Dec–13 Mar–14 Jun–14 Sep–14 Dec–14 Mar–15 Jun–15

Oil Mt 73.2 70.8 74.7 77.2 76.5 79.9 80.3 83.0


Australian share % 1.7 0.7 1.0 0.9 1.0 0.7 0.7 0.7

Gas (LNG) kt 4560 5140 5629 4297 4811 5155 5127 4392



Zinc kt 345.5 427.9 431.0 347.2 353.0 370.3 na na

from Australia kt 75.1 142.8 138.5 119.5 111.4 125.1 na na

Australian share % 22 33 32 34 32 34 na na

Nickel USDmn 1766 2095 1585 1625 2314 1251 904 1918

from Australia USDmn 119 112 67 112 99 71 81 87


Lead kt 227.9 242.5 224.0 213.8 284.8 273.0 na na

from Australia kt 25.7 29.6 49.6 28.8 47.8 52.0 na na

Australian share % 11 12 22 13 17 19 na na

Tin kt 3.1 2.1 2.0 2.0 2.3 2.5 1.6 2.9

from Australia kt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Uranium t 9069 6216 4045 6801 4985 9281 2041 5659

Sources: CEIC, Bloomberg, IHS.


Electricity generation and consumption

Electricity consumption by region, 2013

<80 billion KWh

80–160 billion KWh


>300 billion KWh Hainan

N/A or negligible

Source: CEIC

Figure 212: Electricity consumption by region, 2013

Figure 211: Electricity generation by region, 2014

Electricity generation by region, 2013

<100 billion KWh



>300 billion KWh Hainan

N/A or negligible

Source: CEIC


Coal and gas

Gas production by region, 2014

<0.5 Bcm

0.5–3 Bcm

3–10 Bcm

>10 Bcm Hainan

N/A or negligible

Source: CEIC

Coal production by region, Q2 2015

<15 Mt

15–30 Mt

30–45 Mt

>45 Mt Hainan

N/A or negligible

Source: CEIC

Figure 214: Gas production by region, 2014

Figure 213: Coal production by region, 2015 to date


Ferrous metals

Crude steel production by region, 2014

<15 Mt

15–20 Mt

20–30 Mt

>30 Mt Hainan

N/A or negligible

Source: Bloomberg

Figure 216: Crude steel production by region, 2014

Iron ore production by region, 2014

Hainan

N/A or negligible

<10 Mt

10–20 Mt

20–35 Mt

>35 Mt Source: Bloomberg

Figure 215: Iron ore production by region, 2014


Alumina and aluminium

Aluminium production by region, 2014

<100 kt

100–500 kt

500–2000 kt

>2000 kt Hainan

N/A or negligible

Source: Bloomberg

Alumina production by region, 2013

<2 Mt

2–5 Mt

5–10 Mt

>10 Mt Hainan

N/A or negligible

Source: Bloomberg

Figure 218: Aluminum production by region, 2014

Figure 217: Alumina production by region, 2014


Copper and gold

Mined gold production by region, 2014

<1.5t

1.5-2.5t

2.5-10t

>10t Hainan

N/A or negligible

Source: CEIC

Figure 220: Mined gold production by region, 2014

Copper production by region, 2014

<50 kt

50–200 kt

200–500 kt

>500 kt Hainan

N/A or negligible

Source: Bloomberg

Figure 219: Copper production by region, 2014


Nickel and zinc

Zinc production by region, 2014

<30 kt

30–100 kt

100–400 kt

>400 kt Hainan

N/A or negligible

Source: Bloomberg

Figure 222: Zinc production by region, 2014

Nickel production by region, 2014

<2 kt

2–5 kt

5–20 kt

>20 kt Hainan

N/A or negligible

Source: Bloomberg

Figure 221: Nickel production by region, 2014


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