COM: Hot Commodities Precious Metals boom in China
By David Lew
Where on earth are the maximum number of investment seminars and summits held on precious metals? You may have guessed it right. Yes, undoubtedly, it is in Beijing, Shanghai and other Chinese cities that bullion and precious metals investors and analysts are gathering these days to interact on the big potential that China has for the global metals market.
It is not just in precious metals alone that these summits are held. Such meetings in China are a regular stuff on other commodities as well—whether it is rubber, wheat, rice, plastics, energy, petrochemicals….Everyone wants to talk on the huge investment potential that the Chinese commodities industry has for the world. Chinese officials and industrialists recently listed a number of global investors who are lining up to invest in the booming Chinese market. They included global investing veterans like George Soros and Jim Rogers!
Indeed, is for the charm for investing in precious metals and other commodities gone in other countries like the United States? Why is every investor worth the name banking on the boom in gold, silver, platinum, palladium and other commodities in China?
The answer is simple: commodities are booming in China, and commodity industry is the largest investment sector in the dragon land these days. Investors love commodities in China. No wonder, the spicy garlic is now one of the hottest agricultural commodities in China to invest in. Garlic prices have shot up by more than 50 per cent in the last few months in China that there is an acute supply vs. demand crisis on the commodity. Investing in garlic is going crazy in China that analysts are comparing the spicy stuff to gold these days!
But it is in precious metals that most investors are piling money in China. Investments in precious metals such as gold, silver, platinum and palladium are in feverish pitch across China. No wonder, then, that the Chinese consumption of precious metals is dramatically going up, and up.
China consumed 395.6 tonnes of gold in 2008 for jewellery and investment, or around 14 percent of global demand, up from 327.8 tonnes in 2007. In 2009, gold jewellery and investment demand in China is expected to reach 432 tonnes, compared with 422 tonnes from India. Thus, this year, China will effectively overthrow India as the No 2 gold consumer in the world. In 2008, China's gold futures trading volume hit 1.49 trillion RMB in less than 12 months. This is going to double in 2009.
Ditto is the case with platinum and palladium. In 2008, the Chinese demand for platinum jewellery was at around 0.76 million ounces, accounting for 68 percent of the global total of 1.12 million ounces. The Chinese jewellery demand for palladium increased from 15.5 tonnes to 20.2 tonnes, making palladium another hot commodity in China. Chinese platinum jewellery demand is very strong, the latest forecast being 1.5 million oz in 2009, which even if it is a gross rather than net (of recycling) figure is impressive.
Turnover on the Shanghai Gold Exchange (SGE) on a rolling 12m basis is the highest it has been, at just under 900,00 oz.The current platinum price is very strong when viewed historically, despite a sluggish economic backdrop. Chinese jewellery demand clearly is a factor, and relatively strong European car sales, propped up by government incentives have been.Global precious metals industry has been on palladium since March, and indeed palladium has outperformed platinum by almost 20%. Good support for palladium has come from strong demand from China.
China has been going all out to mop up gold reserves. In April, China announced that the country had increased its gold reserves by 454t, to 1,054t. The news has been prompting bullion analysts to predict that China wants to become a super power not jut politically alone, but in gold reserves, mining and sales. Gold's traditional role as a safe haven asset in times of economic instability has been considerably enforced during the financial turbulence, and the ongoing economic uncertainty becomes the most effective motivity for the rise of gold prices.
As for China, thanks to encouraging policies established for the gold industry, the gold production in China has enjoyed continuous growth in recent years. By utilizing the capital market, the Chinese gold mining companies accelerate the paces of resources acquisition and integration so as to promote the competitiveness in the international market. What’s more, the newly-listed gold futures on the SHFE symbolize the start of the construction of the gold forward contract market and the reform of gold investment in China.
However, how to cope with the problems and difficulties never seen before during the process of M&A and how to develop a mature gold investment market together constitute great challenges to the sustainable development of China's gold industry.
China is showing an unending appetite for the yellow metal and its production is set to record a new high this year.
For several years, South Africa used to be the world's number one gold mining country. But these days, China is emerging as the top gold miner and producer.
So what is happening to the Chinese gold mining industry? Are the global gold mining leaders and bullion investment companies heading to Chinese provinces to mine gold? Is that the way China would now amass more gold reserves?
There is no end to China’s race to the super power status — whether it is in industrialization or mining. In fact, China has left competitors far behind in gold mining field.
