SMM Reuters: China's fast urbanization fueled commodities boom, people get into overly optimistic circle. Sustained and rapid economic development is believed to be able to sustain China's huge demand for raw materials, mining giant caught in a debt trap this kind of optimistic assumptions, China's economic transformation from investment to consumption and services-driven, making the situation even worse.
The Wall Street Journal reported, expecting Chinese demand to the international mining giant, which is not good.
Views on China's growing appetite for raw materials will not break, have become the industry credo, mining companies borrowed heavily to expand mines, rail lines and ports. As the wave of mergers and acquisitions continues, mega mergers and looked up. Low global interest rates brought about by low borrowing costs, further boosting the wave.
Today, with the slowdown in demand for resources in China, lower commodity prices eroded mining profits, which become a heavy burden on the mining industry.
During the period of China's stock market tumbled last week, metals such as copper and aluminum fell to a near six-year low. Iron ore prices hit lowest level in 11 years.
"Demand in the future, there is a huge mistake," University of Chicago political science professor Yang Dali (Dali Yang). "Long-term prosperity is hard to the opposite thing to look forward to, a lot of people optimistic about the prospects of urbanization, and ignore the things may get worse. ”
Large mining companies have reduced spending on large projects in the near future, but many still face difficult choices: reduce dividend? Or continue to borrow to maintain high spending? But continued borrowing will expose them to downgrade risk pushing interest costs.
Pattern of the gold rush thinking to boost mining sector's debt has soared. The logic is simple: as China's economy grows, more Chinese people have migrated to the cities from the rural areas, China will need more metals, especially iron ore for use in homes, commercial buildings in mind other infrastructure.
