ANZ has released a new note on the capex pipeline. The news is good, according to the bank, with a significant increase in projected investment from over the past six months:
The vast majority of this is gas and coal:
The second largest category is mining, which includes iron ore. Here are the ANZ’s projections for bulk prices:
And therein lies the problem. These projections rely on a non-stop building boom in China. To me, therefore, there are considerable risks to the capex forecasts. Another issue is the somewhat mysterious jump in manufacturing capex you can see in chart two. Where is that going to come from?
In all, this capex boom remains economic manna from heaven but my money is on a lower peak and faster fall as China slowly pursues its structural adjustment away from building as its growth driver. ANZ’s timing for the peak is reasonable.
