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mine, its largest of at least US$50 billion in cuts and delays this year. In October, Brazil's Vale SA, the world's largest iron ore producer, slashed its projected annual output of the metal by 18%. Australia's Fortescue Metals Group went so far as to suspend company barbecues, lock sta- tionary cabinets and take away free cof- fee machines this fall. Rio Tinto, Anglo American and Xstrata have also tight- ened their belts. In a few months, the boom metals


industry – in which even truck drivers have made more than six figures – was suddenly at risk of a bust as hard com- modity prices fell. Te cutbacks are occurring around the globe, but they can all be traced back to one source: China. China drove a boom in global com-

modities during the last decade, lifting generally volatile and uncertain metals markets to unprecedented heights. Te price of many key metals shot up five- fold or more, as China’s consumption grew to at least 40% of the global sup- ply of dozens of metals and minerals. But analysts say that the country’s recent eco- nomic slowdown has brought the end of this so-called “super-cycle” of growth. China's GDP growth slowed to 7.4%

in the third quarter, the seventh consecu- tive quarter of deceleration, and econo- mists widely predict that future growth will not exceed 10%. Sluggish trade glob- ally, as well as rising wages, an aging pop- ulation and lower returns on fixed-asset investment within China, all indicate that the country’s era of investment- and manufacturing-led expansion may be nearing an end. Instead, China will need to shift its economy toward consumption and services, areas that are inherently less metals intensive, or risk a potential eco- nomic crash. Tis slowdown is set to reshape the

global economy, and hard commodi- ties are among the first markets being remade. As prices of commodities such as iron, aluminum and copper retreat, the balance of worldwide economic growth will shift away from commodity-produc- ing economies, such as Australia and Bra- zil. Analysts disagree on the extent of this slowdown, but most agree that metals prices are likely to keep declining as the world realigns around a changing China. “Te peak that we saw in 2009 was the highest peak we’ve seen since 1870,”

n August, mining giant BHP Billiton halted its planned expansion of Aus- tralia’s massive Olympic Dam copper

said Gerard Minack, global cross-asset strategist at Morgan Stanley Australia. “It’s a once in a century peak ... I doubt you'll see those levels ever again.”

Once in a century boom

Te beginning of the metals super-cycle surprised miners as much as its end has. Following a 20-year down market, met- als prices began rising in the early 2000s when Chinese demand started to push miners worldwide to the limit of what they could produce. Flush with cash from decades of miraculous growth but short on domestic resources, China imported massive amounts of metal. As metals prices shot up – copper prices increased nearly 10-fold – commodity-rich coun- tries like Australia, Brazil and Indonesia saw their incomes, their standards of liv- ing and the values of their currencies rise. Metals companies were initially skep-

tical that such a surge in demand could be sustained. Most waited roughly five years into the super-cycle before deciding to increase production, said Paul Robinson, a metals analyst at independent research firm CRU Group. After that, actually expanding capac-

ity took years. Processing facilities such as aluminum smelters typically take 18 months or more to build, while under- ground mines require far longer to develop. “To take a copper mine from a twinkle in a developer’s eye to actu- ally producing is probably 10-15 years,” Minack said. Tat extra capacity has only begun to

come online in the last few years and is set to increase substantially by the end of the decade. Global iron ore capac- ity should roughly double to 2.6 billion tons by 2020, according to a recent note by Minack. Te supply glut will persist well into the next decade, with mainland production of non-ferrous metals (metals other than iron) estimated to peak around 2030, said Guo Chaoxian, an industrial economics analyst at the China Academy of Social Science.

Shocking the system

Tis rising supply of iron, aluminum and copper is colliding with the slow- ing growth of Chinese demand. Iron ore prices fell 26% this year as of mid- October, while the prices of copper, lead and aluminum are all trading below the historic price peaks they reached in the last decade. Tese decreases have pushed global

China Economic Review • November 2012 35

CREDIT: Peter Van den Bossche

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