Good reading
https://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=74837&sn=Detail
With major miners cutting back capex commitments sharply and others unable to proceed with current projects in the pipeline, logic suggests we may be in for another commodities boom sooner rather than later.
Author: Lawrence Williams
Posted: Wednesday , 10 Dec 2008
LONDON -
The latest cuts announced today by major mining company, Rio Tinto follow on announcements of huge cutbacks in capital spending by all the other major mining companies amounting to tens of billions of dollars in total. Together with the inability of many mid-sized and junior miners to implement proposed new mining projects because of the global financial situation and low equity prices, and announced mine closures because of low commodity prices, we are heading for an enormous shortfall of new mine output in the years ahead.
Take today's announced cuts by Rio into for example. The company is planning to cut its proposed capital expenditures for next year alone by some $5 BILLION. That is more than half of its scheduled $9 billion dollars of capex for the year. Anglo American has just announce cutbacks of billions of dollars in 2009 capex as well, while the other majors - BHP Billiton, Vale, Freeport McMoran etc. have all reported huge capital and capacity cutbacks in the year ahead.
Indeed capacity cutbacks alone from the major mining companies will dramatically change the supply situation in 2009 on their own. The capital spending cutbacks will mean that the fall in planned output will linger on for several more years. In particular nickel, zinc and copper operations seem to be the main areas of cutbacks, although it is interesting to note that the Chinese seem particularly keen to invest in, and tie down, long term supplies in zinc in particular which has perhaps suffered most of all in the commodities price collapse. This could suggest that these companies see the short to medium term prospects for the Chinese steel sector (the major consumer of zinc) as perhaps being rather better than is being assessed by western analysts.
While global commodities demand projections for 2009 are considerably lower than they were only six months ago, most predictions overall for global growth don't see an overall reduction, but just far slower growth than we have seen in current years. This suggests also that global demand for metals and minerals in 2009 may actually be much the same as in 2008. Not rising, but not necessarily falling either. It is only falling from the originally predicted levels which included big growth projections still from China.
So, assuming global demand is in reality flat rather than significantly down, but production is falling dramatically for some metals and minerals, as soon as industry stabilises a little - which could be as soon as the end of the first quarter of 2009 - we will be heading for potentially substantial supply shortfalls. In normal circumstances this will lead to prices being bid up again sooner rather than later. Prices are probably being over-depressed by perception at the moment rather than by reality.
Of course if the global downturn is more severe and longer lingering than is generally predicted and metals demand actually falls further, then the above prediction will go by the board. But gut feeling suggests that things may be beginning to pick up after the Chinese New Year (late January) with things continuing to drift until then. Economic stimuli in both the West and the East should start having an effect first half of 2009. The collapse in commodity prices may well be much more shortlived than the general economic pundits may be suggesting and prices could start picking up sharply during 2009 - and as the current capital cutbacks continue to impact on supplies in the years ahead the 2005-2008 commodities boom could be repeated, or even exceeded, in 2009-2011 and beyond..