From Mornginstar:
Much has been written about China’s Belt and Road Initiative but Morningstar equity analysts think much of the overwhelmingly positive commentary lacks context and is wide of the mark. Major iron ore miners such as BHP Billiton (BLT), Rio Tinto (RIO), and Fortescue (FMG) all expect BRI to drive further growth in steel demand in China, and in turn support growing demand for iron ore. BHP expects China’s steel demand to continue to grow at about 1% a year until the middle of the next decade.
However, we think the likely spend on Belt and Road, and its consequent boost to steel and iron ore demand, is small in context of China’s already heady spending on fixed asset investment. China’s increasing reliance on fixed asset investment to drive economic growth has the unwelcome impact of growing debt, declining productivity and a diminishing pool projects worthy of investment and capable of delivering an acceptable return.
