The Trade Numerologist: Could Trade War Boost Global Mining?
This column is based on data from Global Trade Atlas.
The trade war between the US and China has cast a gloom over the global economy. Higher tariffs are expected to increase prices and dent demand, with repercussions for shipping lines, logistics firms, and manufacturers.
In the case of the mining industry, most analysis has taken the darker view of tension over tariffs. Prices this year have been sluggish.
So far, however, the trade war appears to be contributing to a scramble for raw materials.
The world's top economies have boosted their imports of iron ore, zinc, coal, copper and other key industrial commodities this year, according to trade data. Iron ore, coal, and zinc are key ingredients in the making of steel.
That suggests that, as more countries attempt to be self-sufficient and boost their own manufacturing capacity, they're buying and sometimes stockpiling the materials they need to do that.
To be sure, there's too much uncertainty in the global economy to making bullish predictions about the mining industry, which suffers from rising costs, but the data suggests that the trade war is helping to drive sales of raw materials.
The biggest driver is China. After focusing on exports for decades, it's now pivoting to a development plan based on sustainable domestic growth aimed at increasing the size and stabilities of its middle class.
This year, besides increasing imports of key commodities, it's also planning to cut import tariffs, according to news reports. Although import data has been hard to secure, export data from China's top suppliers indicates that Beijing has been more aggressive than usual this year.
Chinese imports of raw materials, first 7 months, 2018
- Copper from Chile: 3.2 billion kg (+38%)
- Iron ore from Australia: 397 million tons (+3%)
- Coal from Australia: 52.4 million tons (+9%)
- Manganese from South Africa: 6.3 billion kg (+31%)
- Aluminum from Australia: 17.5 million tons (+23%)
- Lead from Peru: 88.7 million kg (+32%)
- Zinc from Peru: 317.6 million kg (+10%)
Building stockpiles of raw materials preserves investor confidence in a national economy, and allows government to make long-term plans. And in a world that is increasingly uncertain, more and more countries are likely to think that's a smart bet.
In addition, although there's no risk of the world running out of key materials, quality mining reserves are increasingly depleted. Total copper output, for example, is expected to increase by only 1.2% next year. That drives buyers to snap up current offerings at prices they believe will go up.
The US has a strong mining sector, especially in copper, but, as it makes more steel, it's also increasing imports of important raw materials.
US imports of raw materials, first 7 months, 2018
- Nickel $1.7 billion (+34%)
- Zinc $1.6 billion (+25%)
- Tin $485.9 million (+9%)
- Iron and steel $17.7 billion (+8%)
- Aluminum $14.2 billion (+7%)
- Molybdenum $326.8 million (+46%)
With the leaders of top car companies promising to build more in the US, industrial supply chains are gearing up for increased demand. Steel mills in the US are buying more iron ore from domestic suppliers in Minnesota.
And it's not just China and the US. Economies like Mexico, Japan, South Korea and India have also been increasing imports of raw materials.
Mexican iron ore imports, first 7 months
- 2013: 518.8 million kg
- 2014: 776.8 million kg
- 2015: 715.3 million kg
- 2016: 1.6 billion kg
- 2017: 1 billion kg
- 2018: 1.8 billion kg
Around the world, populists are winning elections by promising to build up domestic manufacturing. In addition, in a world with worsening diplomatic relations, governments are more likely to want strategic stockpiles.
The global copper sector is especially well positioned to capitalize on the 21st century global economy. Copper is needed to make the pipes and wires that go into new cars and houses.
Chilean copper exports, first 7 months, 2018
- China 3.2 billion kg (+38%)
- Japan 1.5 billion kg (+26%)
- South Korea 600.9 million kg (+35%)
- India 551.2 million kg (-27%)
- Spain 364.8 million kg (+10%)
- Bulgaria 163.8 million kg (+5%)
- Brazil 149.8 million kg (-29%)
- Germany 148 million kg (-26%)
- Peru 89.8 million kg (+54%)
- Finland 89.3 million kg (+36%)
Even the US coal industry, which is finding less demand in the US as power companies switch to less expensive gas, is benefitting from the new enthusiasm for domestic manufacturing and production.
US coal exports, first 7, months, 2018
- India 9.9 million tons (+131%)
- Netherlands 5.4 million tons (+4%)
- South Korea 5.4 million tons (+9%)
- Japan 5.2 million tons (+20%)
- Brazil 4.6 million tons (+18%)
- Mexico 3.1 million tons (+81%)
- Canada 2.6 million tons (+13%)
- Ukraine 2.5 million tons (+63%)
- Egypt 2.3 million tons (+299%)
- Morocco 2.3 million tons (+95%)
To sure, the boom in shipments of key commodities could be short-lived. Once they've accumulated enough raw materials, countries could reduce imports. And the higher tariffs and prices could bump the global economy off its perch.
In a recent statement, the Australian Department of Industry said that "while global economic growth, industry production and manufacturing output have continued to grow strongly so far in 2018, there are some concerning signs for resource and energy commodity producers, particularly with rising global trade tensions."
But as the trade data indicates, in world afflicted by economic tension and competition, competition for raw materials will be crucial.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
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