What’s Happening in China’s Metals Markets?

˙ China & Latin America

On Thursday, May 15th, the Dialogue hosted a discussion on trends in China’s metals markets, focusing on the drivers of Chinese demand and market interaction. The session featured Matt Ferchen, resident scholar and director of the China and the Developing World Program at the Carnegie-Tsinghua Center for Global Policy, Pascale Massot, an IAR Fellow at the University of British Columbia’s Institute of Asia Research and former visiting scholar at the Chinese Academy of Social Sciences, and Julie Klinger, a PhD candidate at the University of California, Berkeley. The Dialogue’s Margaret Myers moderated the exchange.

Matt Ferchen opened the discussion with an analysis of key economic trends in China. The country’s rapid industrialization has fueled a boom in demand for iron ore and other minerals and related high metals prices since the early 2000’s. But fundamental shifts in the pace and composition of growth – including government intentions to promote a “healthier” model of urbanization, reduce dependence on exports, and cut subsidies for certain industries – could dampen China’s appetite for these resources. Ferchen noted that although urbanization could continue to promote demand for metals from Latin America and other regions, the ability of China’s goverment to achieve complex urbanization objectives is by no means guaranteed. Other major challenges for China’s government include mitigating environmental impacts, addressing growing debt in parts of the country, reforming state-owned enterprises and adjusting to the rising expectations of a burgeoning middle class.

Internal dynamics continue to shape China’s interaction in international markets and institutions, Pascale Massot noted. China is driven by demand for raw materials, but in metals markets, Competing interest groups also influence Chinese behavior. Massot demonstrated, for example, that extreme fragmentation in China’s steel industry contributed to the collapse of the global benchmarking system for iron ore. These aspects of China’s domestic political economy indeed resonate on a global scale.

Julie Klinger concluded with findings from on-site research in rare earths mining sites in China and Brazil, where domestic politics also factors into decision making. Although China currently leads world production of rare earth elements, Klinger observed that growing concerns about adverse health and environmental effects have led Chinese authorities to decrease reliance on China as a primary market for these elements. Chinese companies are increasingly looking to contract with firms in Latin America to mine rare earths.

In a wide-ranging conversation with participants, panelists emphasized the complexities of Chinese decision making in the mining sector. Vested interests and exceedingly complex economic challenges continue to shape Chinese demand and market interaction. Latin America would appear to be an attractive destination for Chinese rare earths investment in the coming years. But the extent to which the region’s major metals exporters can continue to rely on Chinese demand for their exports depends China’s ability to address a long list of economic, environmental, and industry-level challenges.