Pouncing Tiger. Timid Dragon; India challenges China

For the mining industry a slower China is a major challenge because it consumes around 50% of the world's annual production of minerals and metals in its vast manufacturing sector and if its economy slows significantly, it will be felt across mining. India, in theory, has the potential to mimic China's spectacular 25 years of growth, which have seen it snatch the title of world's second-biggest economy with the aim of surpassing the US in the next decade. It seems unlikely that India can make up for any shortfall in Chinese commodity consumption though a recent study by Australia's ANZ Bank has put some numbers on the size of the challenge and identified metals most likely to be needed by India as it looks for material it can't produce itself. Copper, which is shaping as the key metal of the future thanks to its multiple traditional uses and its role in decarbonisation technologies, is one of the metals expected to enjoy strong growth in India's industrial revival, along with steel and aluminium. "Growth trends in Asia's two largest economies, China and India, are set to diverge," ANZ said. "India's growth is expected to speed up as China's slows through to 2030." "India's demand for commodities is starting to grow rapidly, supported by favourable demographics, urbanisation, the expansion of manufacturing and exports, and the building of infrastructure, but it will be off a small base."India's rise ANZ estimates that India's rise to boast the world's third largest economy by the end of the decade is based on an estimated annual growth rate of 6% a year, close to double the estimate for China over the same period of 3.5% a year. But a "determined pursuit of wide-ranging reforms" could see India's growth rate stretch out to 8% a year, the bank said.The promise of a fast-growing India has been evident for decades, only to be delayed by inward-looking industrial policies favouring protecting inefficient local manufacturers and miners rather than tackling competitive export markets. That might change as government policies drive manufacturing expansion with the target being manufacturing's contribution to the economy rising from 16% to 25% under the flagship "Make in India" policy. Signs of success are starting to emerge with work scheduled to start this month on India's first semiconductor manufacturing plant, part of a US$10 billion chipmaking program. Transport is also being modernised, especially aviation, with IndiGo, a local airline, last month placing the biggest ever aircraft order (by number of planes) with Europe's Airbus Industrie for 500 narrow-bodied jets needed to meet a boom in passenger numbers. India's Prime Minister Narendra Modi has made what might be the most significant change in the direction of his country's economy by moving closer to the US after decades of ambivalence, partly to counter China's influences in his region but also because the U.S. will be the biggest market for Indian-made goods. But what makes the ANZ analysis of India's economy particularly interesting is the first attempt to quantify how much of China "slack" (or missing economic output) India will be able to pick up as its commodity demand grows and China's peaks, or even declines. China's scenariosTo calculate the potential slack in Chinese commodity demand the ANZ ran two scenarios with the first showing unimpeded growth at the 6.7% average annual rate of the last five years and a second showing growth at the forecast 3.5%. In copper, for example, China at a growth rate of 6.7% could see demand rise from last year's 14Mt to 19.2m/t in 2030. But, at a 3.5% growth rate China's copper demand in 2030 will be 18.1Mt, a shortfall, or slack, of 1.1Mt India, according to ANZ, could see its annual demand for copper between 2022 and 2030 rise by 1.2m/t, meaning that it could pick up all of the slack created by a slowing China, which is good news for copper miners. There are different results for other commodities in the ANZ's India v China analysis. The slack picked up in aluminum would be 24% of China's shortfall at a 3.5% economic growth rate, and 45% of steel demand. Overall, the bank said India should be able to pick up approximately 50% of the slack left by a slower China in global commodity markets as it enters a commodity-intensive phase. ANZ estimates that India's demand for major commodities (oil, coal, gas, copper, aluminium and steel) could grow by more than 5% a year until 2030 whereas China's demand for the same items would slow to a growth rate of 1%-to-3%. Pouncing Tiger. Timid Dragon.

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