Metals index to reflect big picture of industry

BEIJING - China will launch its first composite index of nonferrous metals sometime this year, a move the industry hopes will reflect economic realities and help companies avoid risks, said a senior official on Tuesday.

The index will be calculated using data for output, sales, prices, imports and exports reported by domestic nonferrous metal production and trading companies, said a source at the China Nonferrous Metals Industry Association.

"Because price gaps among different nonferrous metals are huge, it is hard to reflect the overall picture of the industry in one index," said Jia Mingxing, secretary-general of the association.

"However, it is one of our key tasks in 2012 to introduce the index."

He said his association would cooperate with foreign economic institutions and the National Bureau of Statistics to promote the index, adding that the exact method of calculation was still being discussed.

Separately, the Shanghai Futures Exchange will accelerate the listing of silver this year. In March 2011, lead futures were listed on the exchange. The addition of silver would mean that all four major nonferrous metals would be listed: silver, copper, aluminum and zinc.

Jia said as market mechanisms matured, China would have more nonferrous metals products on the market, offering companies a way to avoid risks and raise their pricing power in the global market.

The association forecast that average domestic nonferrous metals prices would be lower this year than in 2011, especially in the first quarter and even the first half.

"Exports in 2012 will fall because of increasing trade disputes in the nonferrous metals industry," said Jia.

"The profits of the nonferrous metals industry are highly dependent on prices. Prices haven't been good so far, which indicates zero profit growth in the first quarter."

China's electrolytic aluminum companies are facing a severe challenge.

The National Development and Reform Commission raised electricity rates twice in 2011, pushing up production costs for these energy-intensive companies.

Jia noted that the industry's global competitiveness was waning because of rising costs.

He said that power costs accounted for about 20 percent of the total costs of overseas producers, but the proportion was 45 to 50 percent for domestic companies. That reality kept industry profits razor-thin, he said.

Major merger

In addition to rising costs and lower selling prices, Chinese companies face new monopolies in the global mining industry, which could weaken their pricing power.

Switzerland-based Xstrata PLC, the world's fourth-largest metals and mining company, announced on Tuesday that it would form a new company named Glencore Xstrata International PLC, together with Glencore International AG, the world's largest publicly traded commodity supplier.

Each Xstrata share would be equal to 2.8 shares of Glencore's for its shareholders. Xstrata would own 45 percent of the new company's shares, it said.

The merger would create a new monopoly in the global mining sector, said Wang Huajun, deputy secretary-general of the association, on Tuesday. He said Chinese companies needed to work harder on their development to gain more global influence rather than worry about the influence of the merger.

The deal would weaken the power of Chinese buyers in the downstream segment of the mining industry, said an industry insider who declined to be identified.

He said Glencore had direct and indirect cooperation with 40 percent of the aluminum companies and more than half of the zinc companies in China.

"The industry chain cooperation between the two companies will have significant long-term influence in the Chinese market, the world's major commodities consumer," he said.

Glencore has many Chinese partners including PetroChina Co Ltd, China Petroleum & Chemical Corp, Aluminum Corp of China, Shenhua Group Corp Ltd and China Minmetals Corp, which are all major players in natural gas, coal and metal.

On Feb 2, Xstrata announced that Glencore had approached the company for an all-share offer in a "merger of equals".

Glencore already owns 34 percent of Xstrata.

The merger - the largest ever in the mining sector - will result in a global commodity giant with a market value of $80 billion.

Glencore went public in May 2011 in London's biggest-ever IPO, worth about $10 billion.

China Daily

(China Daily 02/08/2012 page14)