China’s Security of Supply

Richard (Rick) Mills
Ahead of the Herd

 

As a general rule, the most successful man in life is the man who has the best information

Page 1 of 3

Consider:

  • There is a slowing of production and dwindling of reserves at many of the world’s largest mines.
  • All the oz’s or pounds are never recovered from a mine - they simply becomes too expensive to recover.
  • The pace of new elephant-sized discoveries has decreased in the mining industry.
  • Discoveries are smaller and in less accessible regions.
  • Mineralogy & metallurgy is more complicated making extraction of metals from the mined ore increasingly more complex and expensive.
  • Mining is cyclical which makes mining companies reluctant to spend on exploration and development.
  • A looming skills shortage
  • There is no substitute for many metals except other metals – plastic piping is one exception.
  • Metal markets are small so speculation is a larger factor.
  • There hasn’t been a new technology shift in mining for decades – heap leach and open pit mining come to mind but they are both decades old innovation.
  • Country risk - resource extraction companies, because the number of discoveries was falling and existing deposits were being quickly depleted, have had to diversify away from the traditional geo-politically safe producing countries. The move out of these “safe haven” countries has exposed investors to a lot of additional risk.
  • Lack of recognition for population growth, growing middle class w/disposable incomes and urbanization as on-going demand growth factors.
  • Climate change.

Increasingly we will see falling average grades being mined, mines becoming deeper, more remote and come with increased political risk.

 

Fact; The world’s resources are finite.

 

Fact; Supply is constrained and demand keeps growing along with the world’s population.

 

Fact; A sustainable and secure supply of raw materials and energy is becoming the number one priority for all countries.

 

Major powers are scrambling for as much of the world’s resources as they can control. Exploration and drilling intensify daily. Previously inaccessible or unprofitable areas are targeted - the days of easy access to the globe’s resources no longer exist.

 

Unseen wars in previously unheard of places - soon to become front page news - are beginning for resource control. Peace today, harmonious relations tomorrow are nothing but fleeting illusions.

 

Hydrocarbons, mineral resources, fresh water and arable land are finite.

 

Understand someday peak oil and gas proponents will be proven right.

 

Understand arable, productive farmland is disappearing from overuse, desertification and urbanization.

 

Understand the world’s current population of 7 billion people use 60 percent of our annual renewable freshwater supply.

 

The world's population is projected to hit 10 billion by 2050 - global demand for food and water is expected to increase by 50% and 30% respectively by 2030.

 

“It should be pointed out that when we speak of wars in the last third of the twentieth century we are talking about civil wars. Between 1965 and 1999 if we look at those wars in which more than a thousand people were killed a year, there were seventy-three civil wars, almost all driven by greed to control resources—oil, diamonds, copper, cacao, coca, and even bananas.” William K. Tabb, Resource Wars

 

This is our reality - we’re living on a relatively small planet with a finite amount of reserves and a growing human population.

 

Broad spectrum peak commodities is a cause for concern, for all of us, over the short, medium and longer term.

 

Try and imagine the coming pressure on governments in regards to sourcing resources on a national scale. Conflicts are inevitable.

 

Global distribution of mineral reserves

 

One country seems to have recognized its need for security of supply and is actively securing said resources for itself. One country is staking claims, through aggressive diplomacy, wherever vital reserves of resources can be found.

 

China’s Security of Supply

 

China is now the world’s largest trading country, it has the second-largest economy and the largest economy in terms of purchasing power parity.

 

In October 2015 China's leaders outlined the country's 13th five-year plan (running from 2016 – 2020). Their goal is to continue efforts overhauling China's investment-led economy into one driven by services and consumption.

 

China’s stated 2020 GDP goal requires adding an economy the size of Switzerland's every year.

 

China is the only global power carrying out a concerted, long-term plan to accumulate resources and the country is cornering many markets. Let’s take a look at how China is securing the world’s resources…

 

Silk Road

 

“By building much-needed infrastructure across the Silk Road routes – from roads and rail links to ports and resource pipelines – China hopes to build “a community of common interest, destiny and responsibility.”

 

No country is better suited than China to lead the way on infrastructure. Because its own development has been propelled partly by massive investments in domestic infrastructure projects, China has plenty of recent experience in the field, not to mention a vast construction materials industry. Moreover, its huge volume of foreign reserves – which stand at some $3.5 trillion and are likely to continue growing – provides the wherewithal to fund the projects.

 

China has already devoted some of its reserves to capitalising the recently established Asian Infrastructure Investment Bank (AIIB) – an initiative that China spearheaded to support its Silk Road ambitions. With the participation of 57 countries from five continents – including some of America’s closest allies, such as the UK, France, and Germany, which joined over US protests – the AIIB is the first initiative designed specifically to fulfil infrastructure needs in the developing world, and especially the Asia-Pacific region.

 

The return on these investments will be massive. Experience since the second world war shows that developing countries capable of seizing the strategic opportunity of the international transfer of labour-intensive industries can achieve 20-30 years of rapid economic growth. That will fuel the emergence of new markets coveted by more developed countries – including China – while creating space in China for higher-value-added industries to take hold.” ‘China’s Silk Road Vision’ Economia

 

 

1|

2|

3|

Next»



Ahead of the HerdSponsors List


No Charge  Newsletter Signup

 

Newsletter Unsubscribe


To contact us please email rick@aheadoftheherd.com

Ahead of the Herd
www.aheadoftheherd.com