1. A Closer Look at China/Asia Resource Consumption 2. China s Outbound Investment 3. Implications and Future Trends 4. Final Word

Transcription

1 Disclaimer Pulse-check: s Growth - and How will Asia Affect Resource Demand? This document is issued by The. While all reasonable care has been taken in the preparation of this document, no responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed herein. Opinions, projections and estimates are subject to change without notice. This document is for information purposes only, and solely for private circulation. The information contained here has been compiled from sources believed to be reliable. While every effort has been made to ensure that the information is correct and that the views are accurate, The cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute any prediction of likely future movements or events in any form. Some investments discussed here may not be suitable for all investors. Past performance is not necessarily indicative of future performance; the value, price or income from investments may fall as well as rise. The, and/or a connected company may have a position in any of the investments mentioned in this document. All concerned are advised to form their own independent judgement with respect to any matter contained in this document. Business Developers Roundtable Perth, June Kobus van der Wath Founder and Group Managing Director, The The A number of megatrends are reshaping the global landscape Commodities Commodity Marketing Commodity Procurement Capital Transaction Origination Corporate Finance Advisory Procurement Comprehensive Procurement Solutions The Knowledge & Network Synergies Strategy Strategy Formulation Strategy Implementation Founded in ; has successfully worked with many international and Chinese MNCs Operates in four synergistic cross-border businesses Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL ENGINEERING and OTHER SERVICES sectors Provides solutions to international firms as they act in unfamiliar territory in /Asia Provides solutions to Chinese/Asian firms as they venture out and go global 8 9 Rising Risks Stronger Emerging Market Companies Aging of the Global Population (DM and EM) Emerging Market GDP Growth Megatrends New Global Technologies Rising Global Integration Rising Energy and Commodity Consumption in EM Industrialisation and Urbanisation Rising Emerging Market Consumption 3 The Source: Deutsche Bank; The Analysis 6 The 3 Key global factors The backdrop s rise labour market and supply shock as a producer engine as a consumer investor New competitive lines and forces, winners/losers the rise of Asia, BRICS, etc. A two-speed global economy over the medium and long term A lasting GDP trajectory in Asia, Africa and Latin America governance, growth, stability, infrastructure, confidence, etc. The issues now. A Closer Look at /Asia Resource Consumption. s Outbound Investment. Final Word broken fragile developed markets and knock-on effects? s landing soft or hard? Implications for growth and resource demand? Tapping into the story vs. over-reliance on and need to diversify economic ties Strategic intelligence to make decisions in boardrooms around the world in order to reposition The The The

2 There is an on-going debate regarding s slowing growth mainly fuelled by the knock-on effect of the ongoing an debt crisis as well as the potential property bubble burst s economy is heading for a soft landing more moderate and more sustainable growth Representative quotes s economy is headed for a hard landing this year as weaker demand overseas chokes off exports. - Gary Shilling, Financial Analyst and commentator for WSJ, Forbes, and The New York Times is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It s not a debate anymore, it s a fact - Adrian Mowat, JPMorgan Chase & Co. s chief Asian and emerging-market strategist. s Quarterly Y-o-Y GDP Growth Rate (9- F) % 3-year (9-) average: 9.% Policy easing to provide floor to growth during moderation Contribution of Components to s GDP (%, 998-F) 8 6 Net Exports of Goods and Services Gross Capital Formation Final Consumption Expenditure (Household + Government) Effect from stimulus package If doesn t change course, and in a big way, the country will experience an economic crisis. is running out of time to fix the problems of its economy Michael Schuman, Asia business correspondent for TIME Magazine Now the bubble is visibly bursting. How much damage will it do to the Chinese economy and the world? Paul Krugman, American Economist, op-ed columnist for The New York Times. % Government stimulus package (USD 86 bn) y-o-y GDP: 9.% F y-o-y GDP: 8. Q Q Q QF 9 F - - Falling net exports contribution F F Source: Various; The Analysis The 6 Source: CNBS; Deutsche Bank; Morgan Stanley; The Analysis The Emerging economies are outperforming the developed world in terms of economic growth. Asia is leading this transformation in the global balance Regional GDP Comparison (USD bn, F)* GDP Average Growth Rate (%, E-F) Rising real incomes and Other Asia high commodity prices will drive growth,86,9 Africa,8 South America Asia-Pacific is expected to account for the largest share of world GDP (3%) by F Shaded bubbles represent E figures Developed economies are expected to continue to lose share in world GDP in the coming years Bubble Size: Nominal GDP (USD bn, F) E to F Asia-Pacific F GDP * Growth Rate GDP Per BRICS (USD bn) (%) Capita (USD), %,38. 9,63,39..%,3.8,96..%,3. Brazil,6..%,86.,33 South Africa.6 3.%,. E to F % of World GDP (F) % % % 3 3% *Note: Data based on IMF World Economic Outlook *Note: Other Asia includes Bangladesh, Sri Lanka, Nepal, Pakistan, Bhutan, Burma, North Korea, Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan. Source: IMF ; The Analysis The 8,8 Forecast world average GDP growth until F: 3.9% is the largest emerging economy in the region. Other emerging markets including and Indonesia among others, have also grown rapidly Asia-Pacific Countries GDP Comparison (USD bn, ) GDP Growth Rate (%, ),63,88 is the largest economy in the region Taiwan *Note: The regional breakdown accords to UNCTAD. Regional Breakdown numbers will not add to the total due to overlap Source: IMF; The Analysis 3 grew the fastest in 3 Size of the bubble: Nominal GDP (USD bn, )* Regional GDP CAGR Breakdown (USD bn) (-) Eastern Asia 6,3.9.% Southern Asia,968..9% South-Eastern Asia,3. 9.% Western Asia,68. 9.% Developed Asia,63..% Oceania,8. 8.% Thailand Though large, is Philippines 39 Malaysia Hong Kong a slow growing World average Korea economy GDP growth for 8, : % Vietnam Other Asian Indonesia Countries,8,9 SE economies together New Zealand,36 are the third- largest in the region GDP Per Capita (),, 3,,, 6,, The 9 Asia has become a fundamentally important engine of capital, trade and commodity consumption worldwide and are regaining their position overall emerging economies are set to progress Asia-Pacific as % of World Total (%, 99,, ) Historical Share of Global GDP (-E) Advanced vs Emerging Economies GDP (USD bn) GDP ROW* APAC* 8% 6% 3% Exports as % of GDP Rest of GDP Exports FDI Inflows 3 % 3% Imports as % of GDP Rest of GDP Imports FDI Outflows % % Copper Consumption GDI % of GDP Rest of GDP Gross Domestic Investment 8% % 9% Steel Consumption Rest of the world,, By, and will together account for % of global GDP and accounted for around of world GDP in 8 6,,, 3,,,,,, Emerging economies catching up with advanced economies Advanced Economies Emerging Economies Advanced Economies % World GDP (rhs) Narrowing gap E GDP of Key Selected Economies (USD bn) United States Germany Brazil 8 6 % % % 3% 9% % % 6% 3% % 6% , E *Note: ROW stands for Rest of World and APAC stands for Asia-Pacific Source: CEIC; CRU; UN; World Steel Association; The Analysis The Source: PWC; Deutsche Bank; The Analysis The

3 has dramatically increased its share of world consumption of key metals and minerals over the past two decades. The drivers of this trend remain intact s steel consumption is poised for more moderate but sustained growth and the base effect matters s Share of Global GDP and Consumption of Selected Commodities (% 99,, ) GDP ROW % % Refined Nickel ROW* % 3% 3% Primary Aluminium Steel Coal ROW ROW ROW % % % Chrome Ore ROW 3% % 33% % 8% % Refined Copper ROW % % 38% % % % Refined Zinc ROW 8% % Steel Intensity Comparison of Top 3 Economies () and Other Selected Asian Economies () Steel Consumption Per Capita (USD, ), *Note: ()Switzerland, Norway and Sweden are not included for comparison purposes *Note: ROW stands for Rest of World () in the year Source: World Bank; CNBS; CEIC; The Analysis The Source: IMF; World Steel Association; The Analysis The 3, Developing economies consume less steel per capita, but their relatively large populations ensure years of steady demand growth S. Korea Steel consumption declines after GDP per capita reaches USD, Bubble Size: GDP CAGR (-) Developed Economies Emerging Economies except Mainland in 8 With less infrastructure construction, developed economies have lower demand 6 Spain for finished steel Malaysia Germany Austria Turkey Italy Saudi Arabia Iran Belgium US Poland Sweden France Netherlands () UK Mexico Thailand Brazil Vietnam Argentina Philippines Venezuela South Africa Indonesia,, 3,,, 6, GDP Per Capita (USD, ) The trend line is indicative of the general pattern in steel consumption at different stages of industrialisation is still in its early stages of commodity intensity mainly in steel, iron ore, copper, etc. Companies from the Asia-Pacific region continue to emerge as winners in global markets. Companies from and feature prominently in this equation Commodity Intensity by Cycle () Fortune Geographic Distribution (-) Asia-Pacific Fortune Country Breakdown () Consumption Intensity % Middle East Latin America Asia-Pacific 8 3 had just South Korea 6 Taiwan % Source: PWC; The Analysis Early cycle commodities e.g. steel, iron ore Mid cycle commodities e.g. copper, lead, zinc Late cycle commodities e.g. platinum, nickel 3 3 GDP Per Capita (USD, ) The The Source: Fortune Magazine; The Analysis The domination of American companies on the global rankings has decreased. Only made the list in compared to 89 in Asia-Pacific Fortune Industry Breakdown () Petroleum-Refining Automotive Banking-and-Finance Insurance Metals Electronics Energy IT Trading Telecommunications The The emergence of the Chinese construction or EPC firms at the global level, is presenting challenges to their foreign competitors. has the top EPC Mining companies from Asia are progressively gaining global market share and catching up with their foreign counterparts Revenue of Top ENR (USD bn, %, ) Total Chinese Total four Chinese 9 9.%.6% %.% % Total four Chinese 9 9% US.8%.% % Legend Chinese Companies Total 9 Chinese Share of Total 9 Revenue in Region % %.6% 9 9.% 9 Total Revenue of ENR, USD bn Total Revenue CAGR*, to 9 Total Revenue Total Revenue 9 9 *Note: Compound Annual Growth Rate. Source: ENR; The Analysis % 66 Middle East % Africa 3% Total Chinese 9.%.8% 9 Total 3 Chinese 9.6% 6.8% Asia 9% Total 6 Chinese 9 The 6 Top 3 Mining Companies by Revenue (USD bn, -) BHP Billiton BHP Billiton Anglo American Rio Tinto Alcan Vale SA Rio Tinto Anglo American Pechiney Xstrata Noranda Inc Shenhua Energy Norilsk Nickel Jizhong Energy() Phelps Dodge BRICS-based Freeport-McMoRan Vale SA Company Jiangxi Copper Codelco Norilsk Nickel() Coal Barrick Gold IMC Global Coal Energy MIM Holdings The Mosaic Company Inco Ltd. Newmont Mining Peabody Energy Coal Potash Grupo Mexico S.A. Freeport McMoRan Potash Corp. Grupo Mexico S.A. Falconbridge Ltd. Yanzhou Coal Mining Cameco Corp. No. of Mining Total Revenue Codelco BRICS Newmont Mining Companies (USD bn) Peabody Energy AngloGold Ltd. Industrias Penoles Placer Dome Inc. ENRC() 3. Barrick Gold Corp. AngloGold Ashanti Cominco Ltd.. Antofagasta Teck Corp Brazil.63 Consol Energy Gold Fields Ltd South Africa. Fortescue Metals CAEMI* Gold Corp Total 6. Xstrata Gold Fields Ltd. Ashanti Goldfields Newcrest Mining *Note: () CAEMI was acquired by Vale in 6; Companies marked in red are BRICS-based companies () Revenue Source: Fortune ; Various; The Analysis BRICS-based Company No. of Mining Total Revenue BRICS Companies (USD bn) Brazil() 6.9 South Africa. Total The

4 The mineral sector plays a key role in the Asia-Pacific economies. While s mining industry only accounts for 6% of its GDP, it is the world's largest in absolute terms The Upshot GDP and Mining Industry as a % of GDP of Top Mining Countries (USD bn, %, ) USD bn,6 6,988, % is striking a fine balance between curbing inflation and maintaining growth in the context of a fragile global economy look for more moderate but sustainable growth 3, has the world s largest mining sector with an overall mining industry value of USD 9 bn () GDP (lhs) Mining as a % of GDP (rhs) Mining Industry Value (USD bn) Asia occupies a far more crucial role in the global economy the world has changed and is changing still, with many far-reaching implications, Mineral sector contributes approx. to Chile's GDP 9 % Heightened market volatility and redistribution of global influence require a more informed and strategic decisionmaking process, USA Brazil Source: Research and Markets; IMF; The Analysis Indonesia 9 38 S. Africa Thailand Chile Philippines Kazakhstan 9 Peru Vietnam 3 % The 8 New global champions emerging from these markets are disrupting global competition and will shape the future landscape As demand patterns in Asia shift, cutting-edge strategic intelligence and relationship management becomes crucial in Asia we find consumers, producers, investors, suppliers The 9 The Asian region is gradually becoming a prominent source of OFDI. Asia has seen the highest growth rate, but OFDI stock is still very low. A Closer Look at /Asia Resource Consumption. s Outbound Investment. Final Word OFDI Flows by Region (USD mn, 99,, ),, Latin America Africa, Asia 8 6 OFDI Stock by Region (USD bn, 99,, ) 8 6 Latin America Africa Asia 8 6% % % 6 Asia s OFDI stock is very low compared to its relative economic size in the world The The Source: UNCTAD; The Analysis The was the world s fifth-largest investor in, ahead of other Asian countries. s OFDI stock is expected to reach USD 6 billion by Digging down to the country level provides a more accurate picture of s OFDI flows. Mining and oil & gas are the key targets, underlining the prominence of,, Africa and more recently LatAm World s Top Outward FDI Originators, Flows (USD bn, ) OFDI Stock and Flows (USD bn, -F) CHN/HK Outward Deals for Top 3 Countries and Target Sectors (-) US Germany France Hong Kong Switzerland Belgium Netherlands Sweden Spain Italy Br. Virgin Is. S. Korea Luxembourg Ireland 3 3 ranked th in ranked 6 th in 9 ranked 3 th in 8 and ranked 8 th in Flows Stock In alone, invested in,39 overseas projects in 3 countries F Government Insurance Agribusnessinsurance Forestry & Paper 8 Publishing Holding Companies Metal & Steel Leisure & Recreation Auto/Truck Chemicals Healthcare Construction/Building Textile Machinery Food & Beverage Retail 9 Utility & Energy Dining & Lodging Transportation Consumer Products South America Real Estate/Property 3 Telecom Professional Services Finance Oil & Gas Electronics Mining 3 9 UK Mongolia Asia Philippines 8 Indonesia Number of Deals 3 3 Mining *Note: OFDI flows for do not include financial investments from September-December Source: WIR ; The Analysis The *Note: The Dealogic M&A database was used here, it groups and Hong Kong outward investments. Source: Deutsche Bank; Dealogic; The Analysis The 3

5 Resources occupy a key position in s OFDI story Taking into account the SPVs, the mining industry ranks high in overall investments Asia continues to dominate the machinery industry Nearly half of the top machinery companies are from the region Breakdown of Overseas Investments by Sector (USD bn, -E) 8 6 Leasing & Commercial Service* Banking and Insurance Wholesale & Retail Trade Transport, Storage and Postal Service Manufacturing Mining Value of s Mining and Metals Investments by Commodity (E) % 9% 3% Iron Ore Copper Aluminium Geographic Distribution of Top Machinery Companies (6-) Rest of the World Asia Top Machinery Companies Breakdown by Asian Countries () Korea Malaysia E *Note: Commercial services include investments in holding companies, regional headquarters or SPVs that are often established in offshore centres to invest in other countries and sectors Source: MOFCOM; The Analysis % 8% Platinum Exploration s investments in chrome, nickel, and manganese are still very small compared to other commodities The Asian companies continue their dominance in the global machinery ranking Note: () includes foreign-owned firms with fully integrated manufacturing in Source: World Executive; World Machinery Summit; The Analysis No. of Chinese Companies in Top (6-) had 3 companies selected as Top Machinery Companies in 6, 6 and this increased to in The An increasing number of Chinese equipment manufacturers are emerging as global leaders in their respective segments The Upshot Chinese Companies in the Top Global Ranking of Construction Equipment Producers Rank Rank The Global Top Companies Caterpillar Caterpillar Komatsu Ltd Komatsu Ltd 3 TEREX Corporation 3 Hitachi Construction Machinery Co., Ltd Deere & Company VOLVO CE VOLVO CE Liebherr Group Chinese Companies into the Top 33 Zoomlion Heavy Industry XCMG 3 Liugong Machinery 8 Zoomlion Heavy Industry Xiamen XGMA Machinery. 9 Sany Group XCMG 8 Liugong Machinery Lingong Construction Machinery Lonking Holdings 8 Sany Group Shantui Construction Machinery 9 Lonking Holdings 6 Xiamen XGMA Machinery Foton Lovol International Heavy Industries National Machinery Industry Corp. 3 Yuchai Heavy Industries 6 Hunan Sunward Intelligent Machinery s outbound capital will continue to hit the headlines as it continues to be a top FDI originator OFDI participation by private enterprises has just started Expect this to pick up at a rapid pace While investments towards mining and oil & gas will still be a material part of s outward FDI, anticipate a shift of attention towards other sectors, especially in Latin America s FDI to the Latin American region has gradually increased over the years, the main benefactors of Chinese investment are Brazil, Argentina and Peru and the major targets for these investments are resources However, due to the attractive and growing internal markets, especially that of Brazil, Chinese firms have placed a greater emphasis on higher value added products Source: World Executive; World Machinery Summit; The Analysis The 6 The Looking Ahead: Short, Medium and Long Term. A Closer Look at /Asia Resource Consumption. s Outbound Investment. Final Word For, we anticipate slower growth of 8.. We view such a sub-9% slowdown as essential for the future structural integrity and sustainability of s economic success For, and beyond: as the picture for the global environment becomes clearer; and as grapples with the challenge of having to meet its pressing social and developmental objectives while growing at a rate of GDP growth of only around 8. by, well below the 9.%-.% GDP growth rate of the past years, s challenges will mount Despite these difficult challenges s broad transformation is expected to continue and will present an environment that is characterised by a long term and sustained shift towards a middle income economy. This trend appears firmly entrenched, representing a profoundly different new global landscape This will see a further increase in s share of global GDP having risen from 6.% of world output in 6 to a resource hungry 9.% in Looking ahead it looks inevitable that will become a USD trillion economy, making up % of global output within years. The The 8 The The 9

6 Implications and Future Trends Recommendations Implications and Future Trends Slower economic growth does not mean no growth Its all about strategic policy choices Beijing gets this 3 Moderating commodity demand (moving towards sustainability) Exceptions will occur 6 Balance of risks shifting Increased volatility Chinese outbound investment will continue Description will reengineer itself towards a more moderate growth phase with a different set of drivers. Commodity demand remains solid Rates of growth in resource demand during the super-cycle -8 were unsustainable. Chinese policy makers allow a moderation in GDP growth looking for sustainability Commodity demand in will be moderate but remains the single biggest global engine of resource demand and will be that for a long time to come There will be some (individual commodity) exceptions to high growth commodity demand. It is necessary not to generalise about potential but to understand the detailed supply/demand of each individual commodity The one-way supply/price risk for buyers in a seller s market has now begun to shift towards two-way risk where buyers and sellers will share risk Volatility could increase as the market grapples with the reality that not be a one-way bet. Markets will adapt to the reality of more moderate but more sustainable demand s outbound capital will continue to hit the headlines. Overseas investment is moving beyond trade facilitation and natural resources What it means for Moderate GDP growth and sustainable demand for commodities will remain the global engine for resource demand Understand the variability, volatility and exceptions Increasing s outbound investment in the region The The 3 Recommendations Ramp up strategic and Asia market intelligence Strategic marketing becomes a key differentiator for miners 3 Look into opportunities from offshoring Explore partnering with Chinese outbound investors Engage with sourcing now! Description Increase the level of (granular) strategic intelligence on s economy, industries and market potential (by sub-region/commodity) and that of other high growth Asian markets. Become very astute at strategic marketing to, and other high growth markets. Dealing with brokers will no longer suffice. Look into opportunities resulting from offshoring by basic material producers in (i.e. steel mills will develop mills internationally, closer to resources). Explore opportunities to partner with Chinese firms, whether it be on a project in Latin America, Asia or Africa Chinese firms are demanding expertise from foreign players Companies without global procurement strategies, will lose competitiveness over time. Integrating into a CAPEX project or the MRO supply chain has its challenges but the benefits are real Fully tap into s growth story by being the preferred resource supply chain partner to raw materials consumers in AND by not becoming too reliant on by positioning itself as a resource supply chain partner to other large consumers i.e. What it means for n companies Need of strategic intelligence on New competitors, partners and suppliers Strategic marketing to Partnerships beyond resources 6 procurement Tap into fully; but do strategy not neglect other emerging consumers The The 3 Final Word There are new markets that matter a new competitive landscape is unfolding.,, Asia and Latin America to be central in this reconfiguration. A Closer Look at /Asia Resource Consumption. s Outbound Investment. Final Word This new world brings about key trends, new realities and strategic issues all actors are now (re)interpreting this future to understand the drivers of ) broad trends and ) exceptions get close, be informed and strategic This implies the need for a new strategic approach ignoring Asia/ (and, Indonesia et al), Latin America and Africa is no longer possible or wise Must see Asia for its full potential: Sell into new, unfamiliar high-growth markets Seek capital and partners Find new areas for growth and project development Access new technology and talent Anticipate the rise of new global competitors Appreciate the outward-looking stance of Asian players new global leaders are emerging in Asia and they will act in global markets Complexity and change means that resources industry to be just another competitive industry asset ownership and production growth not enough; exemplary use of information, strategic intelligence and strategic end-user marketing to play a crucial role in shaping competitive advantage and mitigating risk The The 3 The The 33 THANK YOU! Beijing, Cheryl Tang GM, cheryl@thebeijingaxis.com Shanghai, Julia Wang Procurement Specialist juliawang@thebeijingaxis.com Hong Kong TBA Secretary Corporate Office 386 Central Plaza, 8 Harbour Rd, Wanchai, HK Kobus van der Wath Founder and Group Managing Director, The kobus@thebeijingaxis.com Kobus van der Wath, Founder Penthouse & LV, Suntec Tower 3, 8 Temasek Blvd, London, UK/ Matt Pieterse MD, Capital matt@thebeijingaxis.com Perth, Kobus van der Wath Founder & Group MD kobus@thebeijingaxis.com Desk Lilian Luca (Beijing) MD, Procurement luca@thebeijingaxis.com Johannesburg, South Africa Dirk Kotze Director; GM, Africa dirk@thebeijingaxis.com Latin America Desk Javier Cuñat (Beijing) GM, Strategy javiercunat@thebeijingaxis.com Yangon, Myanmar Dr. Wong Yit Fan Chief Representative /36 COPYRIGHT The Ltd.. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of The. COPYRIGHT The Ltd.. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of The.