The impact of China’s future demand for raw materials on the global ferrochrome industry

Date
2012-11-14
Authors
Gxavu, Sandile
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Abstract
China has experienced phenomenal economic growth in recent history and with that came an insatiable appetite for raw materials including natural resources. China however, has not been immune to the global financial crisis of 2008/9 and this has put some doubt to China‟s future economic growth and demand for raw materials. The problem addressed in this research was to investigate the impact of China‟s future demand for raw materials on the ferrochrome industry. The first sub-problem being addressed was to identify the fundamental drivers of China‟s economic growth and how changes in these drivers will affect China‟s future economic growth. The second sub-problem being addressed was to examine how China‟s economic drivers and future economic growth will affect the future demand for stainless steel and ferrochrome. The research methodology adopted in this research was mixed in nature in that it used both quantitative and qualitative means to address the research questions. The research design took the form of a simulation study whereby a fuzzy cognitive map was used to simulate China‟s economic system. The system was formed by nodes which represented the inputs and outputs and joined by causal links which show the relationships between the nodes. A draft cognitive map was drawn from literature. This draft cognitive map was then validated through responses from industry experts and tested against real situations in industry of which the starting and final conditions are known. An enhanced cognitive map was then from which simulations could be run. The status quo for each node was determined. Then the likely future outcome for each node was established, culminating in a proposed fuzzy cognitive map which simulates China‟s future economic growth and demand for stainless steel and ferrochrome. The study found that the key fundamental drivers of China‟s economic growth included urbanisation, employment, consumer spending, government spending, spending by firms on capital goods, economic reformation and net exports of goods and services. The study suggested that robust growth in the fundamental drivers of China‟s economy will have a positive impact on China‟s future economic growth, resulting in real GDP growth rates of between 8%-10%. The key risks identified that could slow down this growth rate were energy shortages and environmental concerns. Another risk identified was that China‟s economy had significant exposure to the EU and US markets as shown in the decrease in exports during the global economic crisis. China however is now focussing on growing domestic demand to reduce exposure to EU and US. The research results also suggested that China‟s future demand for raw materials, underpinned by robust economic growth, was looking very strong. The results suggested that growth rates of some 20% or more in China‟s stainless steel production and ferrochrome demand can be expected in the foreseeable future. The research also found that China completely relies on traded chrome ore for domestic ferrochrome production and that constraints in the availability of traded chrome ore could hamper China‟s growth in domestic ferrochrome production. China‟s inability to grow its ferrochrome production will widen the supply gap and increases the opportunity for foreign ferrochrome producers to enter or increase sales in the Chinese market. The practical implications of this research are that ferrochrome producers need to increase production capacity and position themselves to take advantage of China‟s future demand for ferrochrome. Also the South African ferrochrome industry and policy makers need to decide whether to continue selling chrome ore to China, giving away the benefit to China, or stop chrome ore exports and beneficiate chrome ore domestically and increase ferrochrome sales to China, thus capturing the benefit and taking advantage of the growth in China.
Description
MBA thesis - WBS
Keywords
Ferrochrome industry, China - Industrial growth, Raw materials - China, Mining and minerals
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