Relationship Between China’s Iron Ore Demand And Its Economic And Industrial Structure

Mineral resources are indispensable to industrialization progress. Since the introduction of the reform and open-door policy, China’s economy has been growing fast and industrialization has achieved big step forward, to which mineral resources’ contribution has been great. Looking at the issue from another angle, however, the huge demand of mineral resources by the economic growth and the external environmental effects associated with mineral exploitation has become a major problem in terms of secure mineral supply and environmental pressure. Sustainable development entails raising the quality of economic growth, and one of the important indicators of economic growth quality is the lowering of minerals intensity of use. In the development strategy of deepening reform and realizing economic structural transition and upgrade, as well as the policies and measures being proposed and put into practice, one of the core objectives is to lower minerals intensity of use. Of the many important issues affecting whether such an objective can be reached and need in-depth studying, one is the inherent relationship between mineral demand and economic-sector structure. This dissertation takes iron ore, whose demand and import are both very high in China, as its object, and studies the relationship between iron ore demand and economic-sector structure.The general trend of the relationship between iron ore consumption and economic development——the consumption life cycle of iron ore——is first studied based on historical time-series data of iron ore consumptions from China and the United States of America. The phase feature of China’s iron ore consumption since the introduction of the reform and open-door policy is also studied. By comparing the section data from 46 countries, the position of China’s iron ore consumption in a global context is clearly shown. Results show that China’s iron ore consumption exhibits a two-phase pattern before and after the beginning of this century:during the before phase, the growth rate of iron ore consumption was lower than the GDP growth rate and the consumption per unit of GDP (iron ore intensity of use) was declining; during the after phase, the growth rate of iron ore consumption was much higher than the GDP growth rate and the iron ore intensity of use was increasing at a relatively fast pace. By 2011, China’s iron ore intensity of use ranked the second highest and is 6.7 times the global average and about 70 times that of the United States; the total iron ore consumption was 1.2 billion tons of salable ore which accounted for 56.7% of the world total production in the same year.A systematic investigation is done into the driving forces of China’s iron ore consumption, by analyzing historical data in iron ore consumption, three-sector structure, final demand structure as well as the values added and final demands of various sectors. The investigation revealed the major sectors driving the iron ore consumption growth——the fabricated metal and mechanic-electric machinery & equipment sector, and the construction sector. Such analyses provide the basis for formulating an input-output model for iron ore demand.An input-output model with mineral resource input is developed based on the basic input-output technique. By defining "resource demand multiplier" and "resource demand vector multiplier" the quantitative relationship is established between the economy’s demand of a mineral resource and the sectors’final demands as well as the inter-input relations among the sectors. Then, based on the above analyses and the flow feature of iron throughout the sectors of the economy, the sectors in the official input-output table of China were combined to have a six-sector input-output model with iron ore input. Applying this model to the 10 input-output tables during the period of 1987 to 2010, the historical values of resource demand multiplier and resource demand vector multiplier are calculated and used to study the quantitative relationship between the China’s iron ore demand and its economic-sector structure and to determine the major driving forces and their magnitudes behind the trend in iron ore demand. Results show that the very high growth rate in iron ore demand (averaged 22.7% annually) during 2002-2010 is the result of combined driving from all six sectors. The values in the six sectors’iron ore demand multiplier (i.e. iron ore demanded by a unit monetary value of a sector’s final demand) all increased during the period, especially for three sectors, the metal smelting and rolling sector, the fabricated metal and mechanic-electric machinery& equipment sector, and the construction sector, their iron ore demand multipliers rose from 1.780,0.491, and 0.309 t·10-4 ￥ in 2002 to 2.439,0.826, and 0.474 t·10-4￥ in 2010, respectively, representing 37.0%,68.2%, and 53.4% respective increase. These, combined with the relatively high growth rate of their final demands, drove the total iron ore demand to a very high growth rate during the period. Two sectors have been the major driving force of iron ore demand growth, the fabricated metal and mechanic-electric machinery & equipment sector, and the construction sector; of the total iron ore demand in 2010,47.0% is driven by the former sector and 35.4% by the latter sector. The metal smelting and rolling sector’s iron ore demand multiplier being higher than other sectors is due to the fact that it is the only sector taking iron ore as direct input, and due to its volume of final demand is small, its final demand’s effect on the total iron ore demand is not significant.An economic-sector structural scenario was set up based on the hypothesis that "China’s economy from 2010 to 2020 would continue its trend during 2002-2010." The formulated input-output model was applied to studying this scenario and the results show that, to achieve a goal of doubling 2010’s GDP by 2020 (equivalent to an annual growth rate of 7.18%), the total iron ore consumption in 2020 would reach some 3.5 billion tons of salable ore, which is more than 1.6 times the world total iron ore production in 2011. This consumption figure represents an average annual growth rate of 7.18% and, thus, iron ore consumption would be growing faster than GDP and result in further rise in iron ore consumption per unit of GDP, from 0.328 t·10-4￥ in 2010 to 0.553 t·10-4￥ in 2020, calculated using 2005 constant price GDPs. It is estimable that the demands for other traditional types of metal ore would have similar trends of growth. Therefore, with respect to mineral resource supply and the accompanying eco-environmental problems, continuing the past development pattern in a business-as-usual way would be obviously hardly sustainable.Another economic-sector structural scenario for the year 2020 was set up based on a hypothesis of "successful economic structural reform and upgrade" and the reform and upgrade directions proposed by the government. Various analyses indicate that the scenario is correct in its transition direction and reasonable in its magnitude of change. The formulated input-output model was applied to studying this scenario and the results show that, if successful economic structural reform and upgrade is achieved by 2020, the trend of very high-rate growth in the total iron ore demand and its increasing intensity of use, during the last round of fast economic growth, will be reversed, the total iron ore demand would grow at a lower rate than the GDP. Thus, the whole economy’s iron ore intensity of use would begin to decline. Under this scenario, to achieve the goal of doubling 2010’s GDP by 2020 would require an increase of total iron ore consumption from 2010’s 1.04 billion tons to 2020’s 1.65 billion tons, a much more manageable level. Calculated using 2005 constant price GDPs, the whole economy’s iron ore intensity of use would fall from 0.328 t·10-4￥ in 2010 to 0.261 t·10-4￥ in 2020. Also, a better economic-sector structure would be achieved, with the service sector’s share of total GDP being the largest, and the shares of the industry and service sectors in total GDP would become 45.33% and 46.46%, respectively (These shares were 48.16% and 41.80%, respectively, in 2010). The sectors would also be moderately upgraded, as demonstrated by the moderate increases in the factor incomes in the industry and service sectors, which in turn would become the source of living standard improvement.This study clearly indicates that, to lower use intensity of mineral resources, one should not consider only the sector(s) that has direct use of mineral resources. With respect to iron ore, to lower iron ore intensity of use, one should not consider only the iron and steel industry, but from a systems view point, pay attention to the driving forces of iron ore demand. In another word, attention should be on guiding and spurring the final demand restructure, which will in turn bring about changes in the inter-sector relationship and sectors’ output compositions through market mechanisms. The goal of lowering iron ore intensity of use would be achieved accordingly.