“Various group of people have been saying a lot about the end of the commodity/ steel/ metal and other super-cycles which were led primarily by China’s increasing demand. Credit Suisse had absolutely no idea what is going to happen as different teams disagreed with each other, and Citi thinks that it’s over. Now it is Nomura’s take.
Similar to Citi’s argument, Nomura thinks that while commodity consumption per capita-type of analysis shows that China’s metal consumption does not look very stretched, this type of analysis is likely understating the true usage. Citi argues that the value in use (i.e. taking the prices of those metal into account) analysis shows that China has overtaken most of the developed world in terms of metal consumption, while Nomura points out that the amounts of various metal used per USD1 million of GDP for China are basically outliers and outrageously high.
Why we are different is more important than the fact we are different: Our analysis is focussed on metal intensity of China’s GDP, not per capita metal consumption
The point we wish to emphasize to readers is not so much that our forecasts are different, but why they are different.
We have performed a detailed analysis of metal intensity of GDP for steel, copper and aluminium in the following pages, which we believe clearly outlines our view that China’s economy is not large enough (in GDP terms) to support a continuation of the rapid growth in metal consumption seen in 2000-11.
Our conclusions are based on an analysis of China’s metal intensity of GDP rather than metal consumption per capita, and reflect a simple premise that while a country’s population size may be an important indicator of a country’s potential demand for industrial metals (per capita), the ability to meet potential demand is determined by the quantity of metal consumed in relation to the size of economic output (ie, GDP, not GDP per capita). Hence, in our view, metal intensity of GDP is a more important variable to monitor than per capita metal consumption.
The three charts below show the per capita consumption. As you can see, China is not really using ridiculous amount of various metals on a per capita basis.
Source: Nomura
On a consumption per GDP basis, however, China is outrageously high. In other words, to produce the same amount of GDP being generated, China is already using much more Steel, Copper and Aluminium than most other countries, as shown in the following three charts:
Source: Nomura”
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