China’s skyscrapers will be ten times New York

I always feel a bit sceptical when I read a report about unending growth and prosperity. Rio Tinto thinks that the metals and mining boom will continue unabated for years. That certainly puts him in the same camp as Jim Rogers. Rio CEO Tom Albanese was quoted as saying,

“There is no question that we are living in an era of unprecedented demand for minerals and metals.”

He sounds a lot like Irving Fisher on the eve of the Great Depression — “Stock prices have reached what looks like a permanently high plateau.” But, I really liked the Guardian’s picture of the China’s tallest building, Shanghai World Financial Centre, so I’ll link to that article (see the link below) and a few others I caught on this particular theme. (The Independent has the most sceptical article).

Definitely check out the website, it’s pretty cool. It has pictures of a lot of different skyscrapers around the world.

Here’s what the Guardian said:

Rio Tinto yesterday shrugged off talk of an impending collapse in the commodities market, pointing to recent research that suggested China will build up to 50,000 skyscrapers in the next 20 years, the equivalent of 10 New Yorks, creating sustained long-term demand for steel and other raw materials.

The mining group reported half-year profits of $5.5bn (£3bn), a 55% increase on the same period a year earlier, providing the company with ammunition in its battle to see off a hostile bid by BHP Billiton valued at about £70bn.

Rio’s chairman, Paul Skinner, said the board’s view was unchanged since BHP increased its bid in February. “The offer on the table is still short of what we would consider full value for Rio Tinto and its prospects, and these results emphasise that,” he said. “We are demonstrating what Rio Tinto is really capable of.”

Metal prices have come off their highs after five years of strong growth, but Skinner said the credit crunch had had only a “modest” impact on Rio’s markets.

The company said that North America and Europe were becoming decreasingly relevant to the setting of metals prices, as demand is driven by China, India and other emerging markets – Chinese imports of iron ore are running 20% ahead of the same point last year. In the first half of the year, Rio lifted prices of iron ore by an average 86% compared with 2007, even as economies in North America and Europe were weakening. The average copper price charged by Rio in the first half was 20% higher than last year, gold was 38% higher and aluminium prices were up 2%. The company said 2009 was likely to be the sixth successive year of higher prices.

Profits were also boosted by the company’s $38.7bn acquisition of aluminium producer Alcan last year, though the brokerage Numis estimated that it accounted for only 5% of the gain in earnings.

Some analysts had been forecasting a dip in Chinese investment after the Olympics, but Rio is predicting that there will be a post-games boom. The company cited research from McKinsey, the management consultancy, which said the scale and pace of urbanisation would continue at an unprecedented rate.

By 2025, the report predicts that China will have 221 cities with more than a million inhabitants, compared with 35 in Europe today. As well as the need for huge spending on infrastructure, McKinsey projects that China will build between 20,000 and 50,000 skyscrapers, many of them in less developed interior provinces far from Beijing and Shanghai.

The company’s revenue from China in the first half more than doubled on the previous year, from $2.4bn to $4.9bn. Group revenue topped $30bn.

“There is no question that we are living in an era of unprecedented demand for minerals and metals,” said Rio’s chief executive, Tom Albanese.

The BHP offer is conditional on it gaining regulatory approval. A merger has already been cleared by Washington, Europe gives its verdict in December and Australian regulators are to rule in October. If it receives clearance, BHP will then send out the offer document and the bid will go live.
Another obstacle was thrown in the path of BHP’s bid over the weekend when the Australian government gave its approval to the acquisition of a 12% stake in Rio’s London shares by the Chinese state-owned company Chinalco.

Guardian, 27 Aug 2008

Chinese skyscraper builders to put up equivalent of 10 New Yorks, says Rio Tinto – Guardian
Rio Tinto expects post-Olympic Chinese boom – Times Online
David Prosser’s Outlook: That 20-year commodities super-cycle is in need of a puncture repair kit – Independent

  1. Anonymous says

    To summarise – “Trees grow to the sky”.


  2. Sobers says

    It looks like Mr Albanese is another “it’s different this time” proponent. As I recall all the others who have stated this in the past have ended up looking rather foolish. I suspect the same will happen here.

  3. Edward Harrison says

    I’m pretty bullish on commodities long-term myself but he and the associated report sound overly optimistic. My natural contrarian instincts come out when I hear something like that.

  4. MAB says


    I’m pretty bullish on commodities long-term myself

    That doesn’t seem to square with your deflation thesis (credit destruction). Are you starting to fear inflation?

  5. Edward Harrison says


    True, if commodities rise that is bad for inflation. But, I do think we will see at least moderate commodity inflation for a while even as credit and asset deflation take hold.

    Honestly, I really can’t square the two 100% with each other. And, I do fear inflation, which is why I think that commodities will do well. But I fear asset price deflation a lot more right now.


  6. MAB says


    I do fear inflation, which is why I think that commodities will do well. But I fear asset price deflation a lot more right now.

    I felt that way too until commodities soared. My thinking was that since we won't allow deflation, the money had to go somewhere – commodities were the last non-bubble asset class. Well, the money flowed to the low point, but the tapped out majority cried uncle. Going forward, it's the 70s without the real estate inflation.

    In the 1970s, the U.S. had CPI inflation coupled with stock & bond deflation. An ugly combination for sure. But real estate (and commodities) in the 1970s inflated. So did wages. Real estate inflation not only prevented a credit deflation, it caused a credit inflation. Lenders got paid back, albeit with devalued $.

    Today, I just can't see lenders getting their money back absent outright money printing. Way too many bad loans. If things play out as they should, a pile of our ficticious paper wealth will vaporize – stocks, bonds, real estate AND commodities. That said, real cost of living will rise for most. Too many foreigners willing to work for less.

    A potential saving grace, if there is one, is that throughout U.S. history, real growth is not dependent upon a bloated financial sector or excessive credit.

    Tough times ahead.

  7. Edward Harrison says

    Tough times are indeed ahead but this thing is moving at molasses speed. I wonder when it will break one way or another?

    Right now we’re just muddling through.

Comments are closed.

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