China's hefty appetite for raw materials may wane after next year's Olympics as social and inflationary pressures curb investment, London Metal Exchange director Phillip Crowson said on Monday.
Crowson, also a former Rio Tinto Ltd/Plc chief economist, told a mining conference in the western Australian city of Perth that a vigorous investment boom in China had accentuated demand for raw materials.
"That boom may be exaggerating China's underlying needs, particularly as its economy becomes more market-oriented, its state-owned firms improve their efficiency, and more emphasis is placed on environmental protection," Crowson said.
Chinese demand for minerals has surged in recent years, prompting miners to spend billions to dig new mines around the world. BHP Billiton Ltd/PLc has offered to buy rival Rio Tinto Ltd/Plc in a deal worth around $130 billion, largely on a bet that China will underpin growth in minerals demand.
"China is grappling with rising inflation and social pressures, and it may be unable to sustain the rates of investment and economic growth of recent years, without at least pausing for breath once the Beijing Olympics are over," Crowson said.
He added that as more new projects are brought into operation, much of the pressure to secure supplies of everything from iron ore, copper and aluminium, to manganese, zinc and lead will subside, sending metals prices down. London Metal Exchange-traded contracts have soared to record or near-record prices on bets that the China-led demand will continue to outstrip supply.
"Although some capacity is taking longer to develop and is proving more costly than originally predicted, sufficient additional production will be forthcoming over the next three years to restore market balance to most products," Crowson said.
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