The Future of Sudbury’s Mining Supply and Services Sector is Bright – Dr. David Robinson

The Sudbury Mining Solutions Journal gave Republic of permission to post Dr. David Robinson’s column. This Sudbury-based magazine showcases the mining expertise of North Bay, Timmins and Sudbury.

Dr. David Robinson

Here is the formula for a crystal ball. Take a cube of derived demand, add a book from a Singapore scholar, stir in some used predictions and a sprinkling of judgment. Apply this mix liberally to the mining supply and services industry and voilá – you can see the future.

Economists have long understood that nobody really wants grass seed – they like it once it has been turned into bread and a few people like it turned into lawns. Demand for wheat is almost all “derived” from the more basic demand for food. Demand for copper is even more indirect: copper makes wire to deliver electricity to bake bread. Nobody eats copper or stoves or electricity.

Nobody eats scoop trams, either. The demand for mining supplies and services comes from the demand for metals and minerals, which comes from demand for baking pans and infrastructure. It’s derived from derived derived demand, or, to make a bad pun, derived demand cubed.

To forecast opportunities in the mining supply sector, we need to forecast the markets we derive our demand from. And the news is very good because the centre of the world is moving to Asia. Kishore Mahbubani is Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore and author of The New Asian Hemisphere: The Irresistible Shift of Global Power to the East. According to Mahbubane, economic and political power is rapidly shifting to India and China and nothing can stop it.

Today, Asia is home to almost four billion people – four times the population of the so-called developed world. Asia is now in a long phase of astonishingly rapid growth. During the Industrial Revolution, the purchasing power of a European increased by 50 per cent during his lifetime. This rate of change, sustained for generations, made the world as we know it.

Much of Asia will see gross purchasing power increase by 100 times over the course of a lifetime – faster growth for more people than the world has ever seen. Asia’s great leap forward will swamp any ups and downs in the economies of the U.S. and Europe. The current U.S. recession is having some effect. In April of this year, the IMF Survey reported that growth in Asia is forecast to decline by 1.25 percentage points to 6.2 per cent in 2008. China is projected to decline by about 2 percentage points this year to a mere 9.3 per cent, mainly owing to slowing exports.

According to Mohammed Hadi, a Singapore-based news editor for Dow Jones Newswires, by the year 2030, 361 million Chinese — more than the entire current population of the U.S. – will meet the World Bank’s classification for middle class. This is a market that will require enormous investments in infrastructure, the largest user of what mines produce.

In the next 40 years another 40 per cent of China’s population will shift to the cities. That means building homes for half a billion people. It means creating 500 cities the size of Calgary. How many bridges, subways and office buildings will that take? How much iron, gravel, copper, asphalt, stainless steel and glass will be needed? How many mines will have to be brought into production? And, of course, cities and their consumers will need more roads, ports and ships.

In November, Andrew Linington, editor of the seafarer’s journal Nautilus, projected disastrous shortages in world shipping. Demand is skyrocketing and the shipping industry is inches from full capacity. “Worldwide shipping capacity is running at 90 to 95 per cent. In the world’s busiest coal port, Newcastle, New South Wales, 60 ships are queuing to load up”. Putting the pieces together, it is clear that Canada will shift back to supplying natural resources. We will see more mines opening than anyone has imagined.

The mines will anchor a growing mining supply sector. Workers squeezed out of the auto sector and traditional manufacturing will provide the skilled labour.

The icing on the cake is that the demand for minerals can only be met by a huge advance in mining technology. The mining supply and services sector is about to go high tech. It is going to be an exciting ride.

Dr. David Robinson is an economist at Laurentian University in Sudbury, Canada.