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Posts Tagged ‘Aluminium Corporation of China’

Chinalco not planning to sell Rio Tinto stake

April 5, 2011 Comments off

“Chinalco, the Chinese aluminium group, has no plans to sell down its shares in Rio Tinto, viewing the mining house as a key strategic partner as Chinalco expands overseas. ‘We can’t go out to fight alone,’ said Chinalco chairman Xiong Weiping, explaining that co-operation with global miners was essential for overseas development. ‘With Rio being one of the top mining companies in the world, Chinalco can learn a lot from them, including in operational management, asset operation and risk management.’

Chinalco is seeking to move into mining to take advantage of the commodities bull run that has been created by China’s huge demand for raw materials such as iron ore, copper and coal. Mr Xiong outlined their plans to expand from their core aluminium business, which has struggled to make profits, into a global mining house. He said he was hunting for high-grade copper, bauxite, iron ore and coal resources, the minerals that China needs to fuel its urbanisation. ‘Our target areas are mainly countries next to China, for example south-east Asia, Mongolia and central Asia,’ said Mr Xiong.”

Source: Financial Times, April 3 2011

Observations:

  • Aluminum Corporation Of China Limited, Chinalco, and Chalco are often used interchangeably, as they are basically the same company. Chinalco is the state-owned holding company of Chalco, which is listed on various exchanges with a small part of ownership.
  • Chinalco signals its interest in partaking in the Oyu Tolgoi copper project in Mongolia, which is operated by Rio Tinto. Until now Rio Tinto has held away potential contributors to the project.

Implications:

  • With China’s mining sector growing in international importance it would be no more than logical if some of the largest diversified miners in the world in 10 years time are from China. In the domestic struggle to be this player state support will be crucial. Chinalco is positioning itself to be the Chinese diversified miner and desperately needs strong international connections to support this claim.
  • In the short and mid term the strategic stake of the company in Rio Tinto certainly is a symbiotic relationship, as demonstrated by investments in Africa and exploration partnership in China. However, if Chinalco grows into an international diversified miner as it is planning, in the long term the companies will become fierce competitors. At this point the stake in the Australian company will certainly cause conflicts.

©2011 | Wilfred Visser | thebusinessofmining.com

The Rise of China in Mining

October 4, 2010 4 comments

China is rising as a global superpower in the mining industry. Ore from mining companies all around the world is shipped to Chinese ports to fuel the growth of the economy. Building relationships with Chinese government and customers is a top priority for many business leaders. However, few people in the industry know that China itself is a major producer of many minerals. This article explores the Chinese rise of production, the rise of demand, the rise of Chinese mining firms and the rise of investment and sketches the implications for the mining industry of the changing role of the country.

 

1. The Rise of Production

China’s mining industry is the world’s largest in many aspects: the country has 200,000 collectively owned mines1, employing over 10 million miners; it is the world’s major producer of coal, lead, zinc, tin and rare earth minerals and also ranks high in output of iron ore, gold, bauxite and other minerals.

The country has been a major producer for decades, but the enormous demand, the opening of the market to private investors and the introduction of modern mining techniques has boosted the productivity and production of the industry. Significant reserves of most minerals allowed China to grow the market share of mining output for all major minerals in the past 15 years (Figure 1). The growth of the iron metal content output share is even more remarkable when considering that Chinese iron ore typically has a very low metal content: while share of iron content grew from 14% to 15% since 1995, the share of gross weight grew from 24% to 37%2.

Figure 1 - Chinese share of world mining output

The largest part of worldwide reserves of rare earths, titanium, tungsten & molybdenum are in China. These minerals are crucial in the production of many high tech products, giving China a powerful position in international trade. Recently the country has demonstrated this power by implementing export quota for rare earth minerals, favoring the domestic high tech industry.


2. The Rise of Demand

China hardly exports any minerals; all domestic mine production is absorbed by the domestic. Value of total mineral exports in 2009 was a mere $0.2bln, 60% of which was molybdenum3. Until a few years ago the country was a net coal exporter, but the growing demand from the utility and steel industry has turned it into an importer. Though the country does not export ores, it has been building a large iron and steel industry, exporting at a total value of $53bln in 2008. In the same year the production of 500Mt of crude steel accounted for 38% of the world production2. In 2009 the imports exceeded exports, as steel companies responded to the crisis by cutting production. Stepping up production will turn the country into a net exporter of steel again.

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