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Australia's RBA upbeat on outlook for China resource demand

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The Reserve Bank of Australia's (RBA) head of economic research, Alexandra Heath, acknowledged that slower growth in China and a rapid increase in the supply of coal and iron ore had pressured resource prices in recent months.

[SYDNEY] Chinese demand for Australian resources is likely to stay strong over the long run as the Asian giant continues to urbanise and mature into a consumer-led economy, a top central banker said on Friday.

The Reserve Bank of Australia's (RBA) head of economic research, Alexandra Heath, acknowledged that slower growth in China and a rapid increase in the supply of coal and iron ore had pressured resource prices in recent months.

Yet the urbanisation of the population still had a long way to run and would lift demand for steel, food and energy. "The Chinese economy is continuing to evolve in ways that will support demand for resources, and the sheer size of the economy suggests that these demand forces will, over the medium to long term, remain strong," Heath told a mining conference.

China is the single largest market for Australian commodities, taking over 40 per cent of its exports.

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The two countries signed a free trade agreement just this week that lowers or removes tariffs on a host of Australian commodities while opening the Chinese service sector to competition.

Heath said RBA research suggested China's demand for steel was yet to peak, in part because residential construction was shifting to taller more feature-packed buildings.

As an example, she noted a 50-floor building required roughly double the amount of steel per square metre as a 15-floor building.

Consumer demand was also expected to become more steel-intensive. In particular, motor vehicle ownership in China was a fraction of the levels in the United States and as that grew, so would the demand for steel. "Given the competitiveness of Australian production in a number of commodities, China is likely to be a large market for Australian resource exports for some time to come," said Heath.

REUTERS

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