Base metal demand expected to grow by 10% to 15%

China's demand for base metals was expected to grow by 10 percent to 15 percent next year - far slower than the expansion of recent years - as the government succeeded in its efforts to cool the red-hot economy, said an executive at Australia-based Macquarie Bank Ltd.

The bank's executive director of commodities and mining research, Jim Lennon, said growth in China's demand for base metals, such as copper, aluminum, steel and nickel, declined substantially in the second half of 2004 due to the Chinese Government's cooling measures.

"Demand was growing at an unsustainable rate," Lennon said. "The authorities had to bring things back under control because there was a real risk of a bubble developing."

China's policymakers have implemented a series of macroeconomic controls over the past year to rein in investment in overheating sectors, including property development, steel and construction materials making and automaking.

Among base metals, growth in China's steel demand has fallen most, expanding 9 percent year on year in June compared with 19.3 percent in May, according to data compiled by Macquarie's research team.

Lennon attributed the sharp drop to a slowdown in construction activity, one of the sectors targeted by the Chinese Government.

Growth in China's demand for copper also declined, albeit at a more moderate rate, to 12.9 percent year on year in July from 23.9 percent in June.

For 2005, Lennon expects growth in the country's demand for steel, copper and other base metals to be higher than in the second half of this year due to the economy's strong growth momentum.

"We do see a transition to a slower rate of growth, but we don't see any reason to panic," he said.

"The authorities have demonstrated great flexibility in terms of bringing growth down and got to the problem before it developed into a serious one."

Lennon said last year's 20 percent to 25 percent average growth in base metals demand would have been impossible to maintain as infrastructure bottlenecks were forming in China's economy.

With the successful implementation of the Chinese Government's tightening measures, Lennon said he expected growth to steady at around 10 percent to 15 percent next year.

(Shenzhen Daily/Agencies)