World’s Second-Biggest Miner Unfazed by China Growth Pessimists
The head of the world’s second-biggest mining company says he’s unfazed by pessimism around China’s ability to meet official economic growth forecasts that are critical to the fortunes of the embattled industry.
“There are lot of pundits saying that growth will be slower than the government will be expecting,” Sam Walsh, chief executive officer of Rio Tinto Group, said in an interview with Bloomberg Television in Antalya, Turkey on Sunday referring to China’s 7 percent growth target this year. “Quite frankly we have conducted our own independent research and analysis and it’s indicating that it’s pretty close to 7 percent.”
A retreat in prices for industrial metals deepened last week on concerns over demand in China, the world’s biggest consumer, after data showed the country’s industrial output matching the weakest reading since 2008. Monetary and fiscal easing has yet to spur an economic rebound with the economy expanding at the slowest pace in a quarter of a century. Bloomberg’s monthly gross domestic product tracker remained below the Chinese government’s 7 percent goal in October with a reading of 6.57 percent.
“So far the leaders of the government have shown they can keep their hand on the tiller,” Walsh said. “They’ve got quite frankly far more levers than other economies given the amount of state-owned enterprises, given the fact that they are controlling the banks. There are a lot more levers for them to play to keep the economy moving which is exactly what they are doing.”
Top leaders have signaled that they won’t tolerate a sharp slowdown in coming years. President Xi Jinpingsaid this month that average annual growth should be no less than 6.5 percent in the next five years to realize the nation’s goal to double 2010 GDP and per capita income by 2020.
Government spending surged four times the pace of revenue growth in October, highlighting policy makers’ determination to meet this years’ growth target as a manufacturing and property investment slowdown weigh on the economy.
Sill, metals demand in China, the top user, slipped again in October, Goldman Sachs Group Inc. said in a report last week, citing an in-house gauge of consumption in Asia’s top economy. The London Metal Exchange index plunged to a six-year low last week as prices for copper, aluminum and zinc fell. Iron ore, the biggest profit driver for Rio, has dropped about a third this year.
“Only a major pickup in Chinese demand is likely to be sufficient to balance metals markets such as copper and aluminum,” Goldman Sachs analyst Max Layton wrote in a Nov. 11 report. “This is because metals supply generally continues to grow, while Chinese demand is not, so demand has to work hard to catch up.”
China’s economy grew6.9 percent in the three months through September from a year earlier, the slowest quarterly increase since the start of 2009. For the full year, growth is set to be the slowest since 1990.
“It’s a very volatile world and markets and investors and analysts are responding to things that are happening on a sort of daily basis,” Walsh said. “You’ve really got to step back from that to look at what are the long term trends and what’s actually happening with commodities. I’d suggest that people should stop looking at what’s happening on a daily basis and focus on the overarching trends.”