Komesaroff starts with the conventional premise: "For the past decade, the prices for most metals and minerals have well exceeded long-term historical averages, a phenomenon economists have dubbed the “super-cycle.” The reason for these sky-high prices is simple: unprecedented demand from China. But the recent collapse in metals prices has raised the prospect that Chinese demand has peaked. Is the super-cycle coming to an end?" Komesaroff, "Still Time to Peak." Supra, at 6. Komesaroff acknowledges the conventional premise that China's steel demand is unsustainable, but then suggests that convental analysis may miss an important point: "comparisons with other countries ignore China’s unique consumption pattern. Growth in Chinese steel demand is certainly slowing, but China will not hit peak steel demand for another decade or so." Ibid.
To understand why, Komesaroff speaks to the four stages of metal. Ibid., 6-7.
Metal intensity falls into four phases. The first phase, in which intensity of use is exceptionally low, applies to agrarian economies with per-capita GDP below US$2,000. . . . The second phase describes the rise in steel intensity as formerly agrarian economies begin to industrialize and urbanize. . . . Transition to the third phase, when intensity of use peaks, occurs when per-capita GDP exceeds roughly US$16,000 (measured in purchasing power parity at 2005 constant prices). . . . The fourth and final phase, during which intensity of use declines, occurs when per-capita GDP exceeds US$25,000. Ibid.Komesaroff notes that Chinese metal demand reflects a narrow pyramid with most of China still in the fist two stages. Komesaroff believes that much of rural China still belongs to the first phase of metal, but that many of China's cities are in the second stage. China's prosperous coastal cities have reached the third phase of metal, "but they are already home to a critical mass of voracious consumers". Ibid. At this stage, "housing construction and consumer spending on cars and household appliances pushes up metal intensity." Only a very few of the wealthiest Chinese citiesa are at the fourth stage of metal, when "consumption shifts from metal-intensive products to high-value goods and services, which have negligible metal content." Ibid. 7.
Though China's transition from one phase to the next resembles some other Asian economic giants, notably Korea and Japan, the peculiarities of China's characteristics make it something of a unique player.
But thanks to its huge population and shortage of land—not to mention its authoritarian political system and technocratic leadership—China’s transition is more metals intensive. . . . Above all, the scarcity of land in a country that must feed one-fifth of the world’s population with just 7% of its arable land, means that urban development in China has to be dense. Tokyo’s residents are famous for living in often tiny apartments, but the Japanese capital is actually much less densely populated than most large Chinese cities. As China’s urban population expands, more urban residents are moving into tall, multi-story apartment blocks that allow a lot of people to live in a small space. (Ibid).This pattern or urbanization, substantially incomplete, will continue to drive Chinese demand for steel.
First, because of its massive population, China will be littered with large cities. McKinsey Global Institute reckons that China will have 23 cities with more than 5m inhabitants by 2025. Many new high-rises will need to be built to accommodate the urban masses. Second, China’s urbanization is far from complete, and many fast-growing cities will continue to devour larger and larger quantities of construction materials, especially steel and cement. (Ibid.).It is the substitution of high rises buildings over the more traditional smaller multi-unit structures that will produce the anticipated enormous and sustained metal demand, particularly steel. "Until the 1990s, most urban apartment blocks in China were six stories, and required less than 30 kg of steel per square meter of floor space. Taller buildings require much more steel to stay upright: a 32-floor building consumes twice as much steel per unit of floor area as a shorter eight-floor structure." (Ibid., 8). This move toward larger structures is essential in the construciton of the large buildings necessary to fuel continued Chinese urbanization, whatever the short term demand cycles may suggest.
"Rapid urbanization is projected to continue for another 15-20 years, by which time the urban population could swell from 700m to 1 bn. At the very minimum, China can expect at least another decade of strong construction demand. Even in those cities that already have exceptionally high levels of steel intensity, particularly Shanghai (82 tons per US$1m of GDP) and Beijing (63 tons), there is no sign of slackening housing demand." (Ibid, 8).
For Komesaroff: "This leaves one question: when will Chinese demand for steel and other metals peak? Because there are so many variables in play, it is impossible to forecast this with any certainty. But evidence from other countries suggests that China’s steel demand is unlikely to peak before per-capita GDP reaches US$16,000." (Ibid., 8). He then proffers an answer: " Assuming long-term annual economic growth of 7%, no population growth and moderate appreciation of the currency, this target will take another 10 years to reach." (Ibid.). Understanding thsi suggests that short term fluctuations in demand may not be a good indicator of long term activity or need. In China that is certainly the case. That upward trajectory, to the extent it can be sustained, will incvrease the probability of instability in China--and stability will ensure the Chinese state the breathing space it needs to more deeply institutionalize its current socio-political order.
For those who believe that China must transition, and transition soon, Komesaroff's predictions about Chinese steel demand may suggest, in the absence of gross internal political miscalculations, more wishful thinking than rigorous analysis. Yet political miscalculation is not something that can be ignored. Komesaroff hints at the parameters of miscalculation. First, "A large chunk of the demand for new building will come from upgrading. China has 1.37 bn sq meters of urban housing built before 1980. Much of this housing is of poor quality and will need to be demolished." (Ibid.), But issues of housing parity and relocation are particularly sensitive in China. If there is any large scale hint of cronyism, profiteering, exploitation or corruption in the process of rebuilding and upgrading, the political repercussions could be severe. Intensive steel demand, then, is a double edged sword--providing a base for sustaining prosperity and economic growth but also triggering the sort of social dislocation that can have politically destabilizing effect if mishandled. Second, "one caveat to this analysis is that demand for steel and other metals will grow more slowly over the coming decade than it did over the previous one." (Ibid). If demand grows too slowly, it might have noticeable effects on growth of economic opportunities, especially for the poorer and less developed regions of China. If the government does not par attention to issues of encouraging an even distribution of income and economic generating activity, it could face either greater migration pressure (itself a source of instability) or inter regional rivalries that might also prove destabilizing. And the housing bubble in some high demand cities could also have a distorting effect.
"Daily crude steel output remained at more than 1.9 million tonnes a day for much of last year, with the sector buoyed by high housing and construction demand, but it plummeted to around 1.7 million tonnes in the last quarter as Beijing sought to rein in a speculative commercial real estate boom." "China steel profits to weaken in 2012 on low demand -industry ministry" Reuters July 2, 2012. To avoid economic (and political) instability and threats Chinese ministries will have to pay close attention to a variety of interlocking issues, from the location of steel manufacturing, to the connection between its "go out" and "develop the West" policies. Challenges and opportunities are thus present within the prediction of a ten year demand growth for steel.