-- CEO says minerals demand subdued as Chinese leaders prepare
to hand over power
-- Says fall in prices marks a sensible adjustment
(Recasts first paragraph, adds further comment from Minmetals
Resources CEO and background throughout.)
By Robb M. Stewart
MELBOURNE--Demand for minerals is likely to remain subdued ahead
of leadership changes in China and an era of continuously rising
prices ended with the "sensible adjustment" the market is going
through, the chief executive of China-backed Minmetals Resources
Ltd. (1208.HK) said Tuesday.
Andrew Michelmore said China's economy will continue to grow, at
a slower pace than in recent years but off a higher base, and the
country remains keen to secure access to key resources needed for
the continued urbanization of its population. But the next wave of
Chinese investment will have a higher bar, with lenders there
increasingly demanding a return on planned spending, he said.
"There is a lull," Mr. Michelmore told reporters following an
industry lunch in Melbourne. "Once we get through this period,
there will be a recovery in confidence."
Demand for minerals and spending are being held back as China's
leaders prepare to hand over power to a younger generation, he
said, adding the presidential race in the U.S. and sovereign debt
crisis in the European Union were adding to global uncertainty.
The slump in demand has meant inventories of iron ore and other
industrial commodities have built up in China, the world's biggest
consumer of steel and other resources. This has weighed heavily on
prices, sending iron ore, coal and other materials to multi-year
lows and has prompted major mining companies including BHP Billiton
Ltd. (BHP) and Rio Tinto PLC (RIO) to close poorer performing mines
and scale back investment plans.
Politicians and business leaders in resource-rich Australia
continue to debate whether the fall in prices and cooling in
investment marks the end of an extended mining sector boom that had
helped the island nation avoid a recession and maintain a
relatively low jobless rate. Resources Minister Martin Ferguson
last week said "the resource boom is over," although Prime Minister
Julia Gillard said that referred to prices and that strong
investment in the sector continued.
"It is just quibbling about what part of the boom we are now
in," said Mr. Michelmore, dismissing the debate as
"nitpicking."
Chinese demand for minerals will continue to grow as the country
works to put roughly 600 million people in the country into public
housing and jobs that will allow them to save money, bolstering a
middle class of consumers that will encourage domestic demand, he
said. Other parts of Asia also will continue to grow, albeit at
lower rates, which will further support demand for commodities, he
added.
Hong Kong-listed, Melbourne-based Minmetals is majority owned by
China Minmetals Corp. It operates Australia's largest open-pit zinc
mine, plus mines elsewhere in Australia and in Congo and Laos. The
company's shareholders this week voted in favor of changing the
name to MMG Ltd., the operating name of the assets.
Mr. Michelmore said Chinese state-owned companies remain eager
to buy resources assets, but the strategy since the global economic
crisis has shifted away from "growth for growth's sake" to now
seeking a return on their investment. "The message being sent very
clearly is that if you go in and ask for capital, you have to show
a return is there," he said.
Australia's Sundance Resources Ltd. (SDL.AU) this week backed
bid from Sichuan Hanlong Group that was 21% lower than what had
been offered a year ago, valuing it at A$1.37 billion after China's
National Development and Reform Commission earlier in the month
warned its approval was conditional on the acquisition price being
"reasonable."
Write to Robb M. Stewart at robb.stewart@wsj.com
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