Mining bull run to return in the second half of the decade – Mohr – Interviewer: Geoff Candy ( – March 8, 2013)

While Scotia Capital commodity expert Patricia Mohr believes that base metal prices are likely to go lower over the course of the next two years, the following five should prove interesting.

GEOFF CANDY: Hello and welcome to this Newsmaker podcast. Joining me live at the PADC 2013 is Patricia Mohr – she’s the vice president of economics and commodity market specialist at Scotia Capital. Patricia there’s been a lot of talk over the last few months, well indeed over the last few years about the rise of China, the impact of China on the supercycle. More recently there’s been a lot of talk about whether or not the supercycle is coming to an end. There does seem to be a divide – some people saying it is at an end, others saying that this is just a pause or almost a palate cleanser between courses. What is your view, where are we placed in the current cycle?

PATRICIA MOHR: Well I think in the next few years probably we’re going to see a little bit of a slowdown in global exploration activity and of course the junior mining sector is having difficulty getting equity finance at the moment. I think we’re at a point where some new mine capability either has come on stream in the case of commodities such as nickel or is about to come on stream which I think is the case for copper and so probably we’re going to have a number of years – I’m really talking about two years when market prices are a little bit lower than they have been in the past five years.

Now of course it’s been quite a volatile situation with the great recession in the second half of 2008 and then followed by the downturn that started last year around spring due to global concerns over the euro zone sovereign debt challenges. But I think there will be a little more mine supply coming on stream globally in 2013 and particularly in 2014. So, the prices are going to move a little lower.

Now I quickly would add that, right at the moment, we are not in a recession, anywhere near recession. Prices for most base metals, precious metals for Canadian mining companies are still at profitable levels in almost all cases, though for aluminium producers in certain parts of the world prices have been flirting with average cash costs. But I think the second half of the decade I would see actually a return of the Bull Run in mining with a lot of metal prices re-escalating again and copper continuing to do quite well. Now I do think prices are going to move down in the next couple of years, but I think second half of the decade we might still see copper prices average $3.50 a pound which of course is historically quite a high level for copper and I think nickel will move dramatically higher in the second half of the decade and zinc, also for supply reasons.

So China which has been the big growth story and leader in the mining sector, I think at the moment they’re much more comfortable with somewhat slower growth than the market has been used to in the past five years, when it was growing at around 10% per annum. They’re more comfortable with 7.5% to 8% growth and of course their potential for GDP expansion is slowing a little, but of course off a very high base. So they’re more comfortable with somewhat slower growth than they used to have, but we still remain optimistic about China.

We think their GDP will expand 8% this year and probably another 8% next year. Of course it was 7.8% in 2012. They did have a soft landing for their economy but of course they gave everyone a bit of a scare in the middle of the year as things slowed down fairly dramatically with a correction in consumer goods manufacturing but things have picked up again in China and remain fairly buoyant.

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