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Industry will benefit from weakened Canadian dollar
Canada’s mining sector is bracing for another challenging year in 2015 as slower growth in China is expected to continue to dampen selling prices for many metals.
Iron ore suffered the biggest drop in the past year, losing nearly half its value to reach the lowest price in more than five years. Some expect the price could fall further — perhaps to US$60 per tonne — on increased supply from Australia and Brazil by giants like Rio Tinto and BHP Billiton, outpaces demand.
Coal, silver, potash, copper and lead prices also weakened in the past year. Not all metals and minerals suffered. Nickel was the big winner, with prices rising 17 per cent following Indonesia’s ban on exports. Other gainers were uranium, aluminum, zinc and diamonds.
Although mining is in a multi-year global slump, prices are significantly higher than they were a decade ago, said Pierre Gratton, president of the Mining Association of Canada.
“It’s a cyclical industry and we have to weather this,” he said in an interview. Gratton said mining companies are very focused on reducing costs and will benefit from both the weakened Canadian dollar and dramatically lower energy prices.
“They’ve seen this a million times. They will weather this and prepare for the next upswing and when (it) comes I think the general view is it is going to be pretty significant.”
China consumes almost half of the world’s base metals. Even though its pace of growth has slipped, one of the world’s largest economy and other emerging countries, such as India, will need more metal to make consumer goods and build housing to accommodate a growing middle class, and the shift in population to urban from rural.
Just increasing the rate of car ownership will propel demand for iron, aluminum and other metals.
In the meantime, industry observers say mining companies are cautious about new investments until they get a better sense of when conditions will improve.
“We are seeing people looking further out and more optimistic in the 2016-2017 time frame,” said Jackie Przybylowski of Desjardins Capital Markets. “People are positioning themselves now, to take advantage of those longer term positive markets and just sort of hanging in there until then.”
BMO Capital Markets forecasts its commodities price index for metals and minerals will decrease nine per cent this year to its lowest level since 2009, but then increase about four per cent in 2015.
The bank expects precious metal prices will face further downward pressure from the rising U.S. dollar. Copper should decrease further but industrial metals like aluminum and zinc which rallied in 2014 should “consolidate” those gains in 2015.
Gold price expected to remain stable
Gold remains the top metal export in Canada even though its price has slipped from a 2011 peak of $1,921 US to about $1,270 US today, down about 10 per cent in the past year. Analysts expect the price will remain relatively stable over the next two years.
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