"This week's release of gold output data from China reinforced a trend which we still believe to be under-appreciated in metals markets - the lack of mine output growth in the country," BMO's Colin Hamilton commented.
He said a combination of geological, environmental and financial pressures were likely to see a decline in output across a number of raw materials over the coming years.
However in contrast, China continued to dominate growth in refined output across metals, he said.
"From <20% of production of most industrial metals 20 years ago, China is now responsible for 40-60% of output," Hamilton noted.
He said the drop in Chinese mine supply was in general due a resource base which had mined the "low hanging fruit", plus the private sector mining industry not being considered strategic by the banks and perhaps most importantly, the punitive cost of environmental compliance.
"There is an argument to say this will ease as the Blue Skies initiative achieves lower pollution levels, however, in our view the NDRC will not want to help facilitate a return to the old ways, while having pollution KPIs at the local government level will also keep environmental pressure high," Hamilton said.
"Confidence in import volumes is clear."
While curbing pollution was the main aim, Hamilton said allowing domestic supply to dwindle showed a degree of confidence in the ability to source imported raw material.
"A world with ever more trade barriers drawn which extend to raw materials may test this, particularly if we get a bifurcated world around China and US allies; but for now, Chinese buyers seem comfortable in their ability to source raw material," he said.
Hamilton said although mine supply might be falling in China, its refined output was growing despite "stuttering demand", prolonging a 20-year trend of China gaining share in the global market.
"Unless debt concerns become a systemic issue again, we seem unlikely to see mandated Chinese supply cuts impact markets, particularly given the improving pollution situation," he said.
