Analysis: Resource firms bet on China boom, not Roubini gloom

Mon Jun 20, 2011 2:45am EDT
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By Nick Trevethan

SINGAPORE (Reuters) - Famed market bear Nouriel Roubini may be talking down China, but resource firms are betting billions that rapid urbanization and economic growth will soak up the country's massive infrastructure investment and prevent a hard landing.

They are buying up competitors, investing in new capacity and speeding expansion projects to feed breakneck growth in raw materials demand in the world's top consumer of commodities.

Rio Tinto (RIO.L: Quote)(RIO.AX: Quote), Xstrata XTA.L, Nyrstar (NYR.BR: Quote) and Noble Group (NOBG.SI: Quote) in the past week have announced plans to merge or expand output or capacity -- risky bets if Roubini's scenario for the Middle Kingdom comes to pass.

"There is a meaningful probability of a hard landing in China after 2013," Roubini, closely followed by Wall Street because he predicted the U.S. housing meltdown that precipitated the global downturn, told a financial conference in Singapore.

But his dire warnings are at odds with the actions of raw material producers.

"(Australian) mining investment grew from $20 billion in 2009 to $50 billion in just a year, and that suggests the miners don't think Roubini's scenario will play out," said Ben Westmore, commodities economist at National Australia Bank.

"Those plans are likely predicated on some slowing in prices, but there is still obviously a lot of money to be made."

China's surging appetite created a commodity boom and a step-change for the market in the past seven years, with copper rising from around $2,500 to a series of record highs above $10,000 a tonne, only briefly interrupted by the global financial crisis.   Continued...

<p>Labourers work at an iron ore storage site at Yingkou Port, one of China's biggest ports for importing the commodity, Liaoning province in this March 22, 2010 file photo. REUTERS/Sheng Li</p>