industrial china in 2013 and graphite's role - simon moores

Industrial China in 2013 and graphite’s roleChina Graphite Field Trip & Briefing 2013

Simon Moores, Manager, Industrial Minerals Data – [email protected]

indmin.com/Data

1. China’s main drivers2. Macro changes to mining in China 3. Flake‐graphite changes in China 4. The future

Shanghai 1990s

Shanghai 2010s

• Growth <8% = norm

• China still a huge country in the midst of industrialisation

• Net mineral consumer through major industry:

• Steel • Metals production (aluminium, copper, lead,

zinc)• Fertilizer

• Drivers • Infrastructure (Real estate, rail, roads,

airports) • Cars• Crop production

• All underpinned by population growth and urbanisation (rise of the middle class)

1. China’s main drivers | Economy and mineral demand

GDP growth of major economies 2012‐2017

China’s minerals demand forecast(indexed to 2012)

Graphite

Graphite

1. China’s main drivers

1. China’s main drivers

China is now an importer of raw materials

• 2000 average import dependency: 15% • 2011 average important dependency: 40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Bauxite Copper Iron ore Cokingcoal

Average

20002011

China’s dependency on imported raw materials

Note: China is a net exporter of natural graphite

2. Macro changes to mining in China

Resource management

• Environmental reasons commonly given

• But…China no longer wants to be the bread basket for the rest of the world

• Exports of raw materials at the expense of resources/environment no longer a viable long term business

• The rare earths excuse

Pollution controls

• Blanket ban on all round/downdraft kilns, Shanxi • Heavily polluting, inefficient• Had to covert rotary kilns or go bust • 75% of producers wiped out overnight • Prices up 70%

2007 – Refractory‐grade bauxite

2009 – Flake Graphite, Inner Mongolia

2011 – Amorphous Graphite, Hunan

• Mine closures of older operations • Pollution and demand grounds

• Government‐forced consolidation in Lutang

• Coal and amorphous graphite industries• 220 mines to 30 on pollution and

resource protection grounds


2012 – Flake Graphite, Jixi, Heilongjiang


Developing a value‐added economy

• Exports of raw materials at the expense of resources/environment no longer viable

• Development of the production value‐chain is critical

The 7 key industries China wants to develop 1. New energy2. New energy automotive3. New materials4. Energy saving and environmental protection5. Biological science6. New information industry7. High‐end equipment manufacturing


High quality, lower cost manufacturing

Consolidation – majority of production by the fewest companies

China wants to compete on quality and quantity

Output of top ten steel producers ‐ % of total capacity


Cost of mining in China is risingIn the last 10 years:

• Total costs up 800% for fluorspar• Average wages up 250% • Industrial machinery sales up 300% between 2006 and 2011

• Government crackdown on inefficient mining and processing practices• Forced replacement of low cost labour

100

120

140

160

180

200

220

240

2004 2005 2006 2007 2008 2009 2010 2011

Wages

Land

Coal, Oil, Electricity

Yuan

Source: China Economic Information Network, Bloomberg, The People’s Bank of China, China Economic Information

Rising costs in China (% indexed to 2004)

3. Flake graphite changes in China

• Graphite now on the national radar

• Amorphous graphite consolidation in Hunan 2010‐2011 • Capped capacity at 510,000 tpa• Real output in 2012: 250,000 tpa• 220 mines down to 20‐30 • In essence it was a coal consolidation

• Graphite listed as a strategic mineral in China

• Questions over how serious the government is at reform = larger mineral industries than graphite


Policy changes in Shandong


Policy changes in Shandong • Formal notice service to Pingdu & Laixi on 30 October 2012 • Ban on any new graphite processing plants• Environmental reasons = polluting of Pingtang River • Environmental approval for every plant must be saught, those that fall foul will

have to cease operation

Real regulation or rhetoric?

Relocation of plants to Heilongjiang?

Nanshu Graphite plant, Shandong


Reserve challenges – Heilongjiang vs Shandong Shandong• Capacity: 160,000 tpa• Operating rate: 43% • Oldest flake graphite mines in China• Extraction is deeper and becoming

more expensive• Processing plants importing

more raw material from Heilongjiang


Reserve challenges – Heilongjiang vs Shandong Heilongjiang

• Capacity: 280,000 tpa• Operating rate: 60%• China’s largest flake graphite producing province • Largest resources in Asia – Luobei and Jixi • Produces spherical

graphite • Establishing graphite

industrial zones


Reserve challenges – Luobei and Jixi

Luobei• North‐east, on border with Russia • 636m. tonnes resources in 9km2 area • 1/3rd of China’s graphite resources

Jixi • 800m. Tonnes resources • Mines in Jixi suspended by government in

mid‐2012

Rich resources of both Luobei and Jixi very attractive to large Chinese corporations


The need for structural change

• Graphite is an old mining industry in China (“Black gold”)• Structured in the 1980s • Little widespread change in mining and processing has taken place since

Phosphate – case study

• 10m. tonnes over-capacity (total: 23m. tpa)

• Many smaller miners, very few major players = graphite

• In 2012, the government started a consolidation program by nominating preferred producers

• Free loans to buy out

smaller competitors

• Revoking of mining licences

of troublesome smaller players


Establishing centres of hi‐tech development

Inner Mongolia• Consolidation program started in 2010• Rising New Energy the preferred producer (owns all mining licences)• Centralised graphite processing hubs • Advanced, value‐added materials

• High purity, spherical, expandable, foil

Rising New Energy’s 1902 acre graphite industrial park

18 February 2013, indmin.com

4. The medium term future for China

• In need of modernisation

• Increased focus on more efficient graphite mining

• Consolidation will happen

• High potential for export supply restrictions in favour ofvalue‐added products

• Net exporter of graphite for foreseeable future

• Steady, cheap supply of graphite concentrate from China is over

• China is industry leading with commercial spherical graphite

• China will compete in other advanced battery materials

15 March 2013, Indonesia

• 3rd fastest growing economy in Asia• Ban includes: bauxite, limestone, quartz, zeolite, feldspar, iron ore

“Ban will be strict with no exceptions” Thamrin Latuconsina, Director of Export of Industrial and Mining

Products from the Ministry of Trade, Indonesia

January 2013, ShenzenBYD delivers first batch of fully electric police cars to Shenzen Police Dept.

industrial china in 2013 and graphite's role - simon moores

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