While miners are holding off on new projects and looking to slow the completion of ones in the works as they face the worst commodity price collapse since 2008, research house Wood Mackenzie warns the industry could be paving the way for a major supply shortage.
In a presentation prepared for clients at LME Week in London, the firm’s vice chairman of metals and mining research, Julian Kettle, draws together the overall outlook for metals, citing the challenges of lower commodity prices, pressure from shareholders to curtail investment and a new reality of lower demand growth. Wood Mackenzie concludes that if the industry fails to invest the US$150 billion required to meet future supply needs, looming supply shortages will follow.
“The need for investment is becoming desperate in zinc and lead and will be an issue in copper in the next few years,” Kettle writes. “Unfortunately there is little appetite to invest with prices cutting into the cost curve, low free cash-flow, surpluses building, difficulty in financing and shareholders demanding dividends.”
China yet to hit ‘great wall’
Across base metals, Wood Mackenzie predicts that iron ore and steel Chinese consumption growth rates will continue to fall dramatically until 2020, compared with the past five years.
Far from being interpreted as a bleak outlook, this view is somehow optimist, as the research house believes that Chinese demand hasn’t hit a great wall just yet.
“The scale effect, i.e. the sheer volume, still translates into significant incremental demand and good growth in tonnage terms. China will account for between 58-69% of global total demand growth for base metals over the next decade,” Kettle notes.
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