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DOING SOME DIGGING – Strong foreign growth supports prices

Analysts looking for the reason behind continuing high commodity prices keep coming back to the Chinese economy. Ch...


Analysts looking for the reason behind continuing high commodity prices keep coming back to the Chinese economy. China is a vast country and rising demand there is behind many strong pricescoal, oil, steel, nickel and more. In fact, economic growth is estimated to top 9% this quarter, the 10th such quarterly increase in a row. Compare this to Canada’s economy which, while showing signs of growth, only increased by 2.2% during Q2 2005, compared to the same quarter a year earlier.

Can China maintain this rate of growth? Many people think it will. The yuan is strengthening against the US dollar since it was allowed to float in international markets beginning last July. China is reporting record trade surpluses and higher retail sales. Individual incomes are rising.

Mineral production and trade in China are going up as well. According to the People’s Daily Online (http://english.People.com.cn), from January to August that country’s foreign trade for mineral products jumped by 33.9%, compared with the same period a year earlier. Oil imports and coal exports were down. Iron ore and pig iron production jumped by about 30%, while non-ferrous metals had a respectable 16.5% increase. Gold production was up 5.4%. Despite these numbers, demand by its 1.3 billion citizens continues to outpace domestic production.

Canada is not the only mineral producer to benefit from surging Chinese demand. The competition is tough. Miners in Australia, the United States, Europe, Russia and Latin America are all seeking a share. Our producers must continue to control production costs if they are to maintain market share and profitability.

Neither is China the only skyrocketing foreign economy. The world’s second most populous country, India (1.1 billion), is showing record growth. The Indian government predicts 7.0% to 7.5% growth through March 2006, thanks to the manufacturing and services sector. Indian mineral production was up only 1.35% in August 2005 compared with a year earlier, according to India Infoline (www.IndianInfoline.com). Like the Chinese, India’s growing population is becoming more urbanized.

Competition for mineral trade with India is also fierce. Canada is facing off against the same countries as it is for Chinese markets.

With 20% of the world’s population clamouring for minerals, our industry is enjoying high prices for everything it produces. We know the industry is cyclic, but it is a rare cycle that pushes so many commodity prices up at the same time. This is a golden age for Canadian miners. Long may it last.


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