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Commodity Super-Cycle and Decline

Australian governments have blown mining boom cash, say economists – by Jessica Irvine (News Limited Network – April 14, 2013)

http://www.news.com.au/

AUSTRALIANS could be sitting on a $300 billion sovereign wealth fund to rival the oil-rich nation of Kuwait if we had banked the budget windfall of the now deflating mining boom.

Instead, exclusive modelling for News Limited reveals successive federal governments have squandered the lot – and then some – in tax cuts, handouts and stimulus spending.

Most economists are tipping Labor’s fifth budget will reveal a budget still deep in deficit – by as much as $10 billion in 2013-14 – as revenues continue to disappoint.

This is despite the mining boom delivering a $290 billion boost to the budget bottom line between 2003/4 to 2016/17, according to modelling by Canberra-based forecasting group Macroeconomics.

The figure represents the difference between actual revenues and the revenues that would have been raised if there had been no commodity price boom.

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OMA NEWS RELEASE: Global urbanization trend fuels long-term demand for Ontario minerals

This article was provided by the Ontario Mining Association (OMA), an organization that was established in 1920 to represent the mining industry of the province.

The continuing global trend toward greater urbanization holds the potential to fuel demand for Ontario mineral products well into the future.. The United Nations Population Division predicts that in the next 37 years, urban environments will accommodate three billion more people than today.

Chamber of Mines of South Africa Senior Executive Roger Baxter sees this ever increasing urbanization trend anticipated out to 2050 as providing positive opportunities for mining. Urbanization due to the inherent infrastructure that accompanies it and higher living standards are the main modern-day drivers of mineral demand.

You can’t build cities without roads, bridges, tunnels, transit, airports, train stations, houses, schools, hospitals, electricity grids and telecommunications networks. All of these vital components of urban infrastructure cannot be created without metals and mineral products.

The United Nations tells us that over the same period, 800 million people will become city dwellers in Africa and the total population of that continent will double to two billion people. It also forecasts one billion new urbanites in India, China and the rest of Asia by 2050.

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PRESS RELEASE: Worldwide Mining Projects Exceed $1.5 Trillion, an Industrial Info News Alert

April 8, 2013, 6:15 a.m. EDT

SUGAR LAND, TX, Apr 08, 2013 (Marketwired via COMTEX) — Written by John Egan for Industrial Info Resources (Sugar Land, Texas) — Global demand for mined resources, including coal, iron, copper, gold and aluminum (via bauxite), has spiked over the past 10 years, driving a worldwide mining boom. Resource-rich countries, including Australia, Brazil, Canada, China, Peru, Russia and South Africa, have benefited from growing capital expenditures aimed at developing mining projects.

Countries like China and India are investing worldwide to secure resources that will feed growing domestic demand. Toward the end of 2012, demand began to taper off in some markets, leading major mining firms, including BHP Billiton /quotes/zigman/270355/quotes/nls/bhp BHP +0.18% and Rio Tinto plc /quotes/zigman/182541/quotes/nls/rio RIO +0.04% to cut back production and capital spending, effectively ending the mining boom. Capital expenditures continue to decline in 2013.

However, the bow wave of mining projects that have kicked off over the past three years will push actual capital spending in 2013 higher than 2012. At the same time, many mining firms are putting off new project construction, so construction starts are expected to decline in 2013, leading to a reduction in actual spending for 2014. Peabody Energy has slashed 2013 capital expenditure plans 50% to between $450 million and $550 million, in order to pay off debt.

While the short-term prospects for mining project development remain volatile, the long-term prospects for the industry are bright as growing urbanization in developing nations will continue to boost demand for mined products.

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BEHRE DOLBEAR GROUP INC.2013 Ranking of Countries for Mining Investment: “Where Not to Invest” – by Chris Wyatt and Taylor McCurdy (April 4, 2013)

http://www.dolbear.com/

Since 1999, the Behre Dolbear Group Inc. has compiled annual political risk assessments of the key players in the global mining industry. Over time, our assessment indicates a positive correlation between the growth of a nation’s wealth and the prosperity of its mining industry – only when a country recognizes its critical need to adapt and restructures burdensome policy – will it truly optimize this economic potential.

While our perspective is often considered provocative, it is our intent to highlight countries whose policies and business conditions promote investment growth in the mining sector. Behre Dolbear welcomes continued feedback from our clients and industry professionals alike. Both positive and negative dialogue enables Behre Dolbear to improve its assessment.

This year’s survey, as it has in the past, concentrates on specific countries, regional issues, and notable trends. Geology and mineral potential were not considered, as the fact that exploration, development, and mining activity are occurring confirms the existence of such potential. Only factors relevant to “political risk” have been considered. We do not make an effort to include mitigating factors such as economic returns or an investor’s relevant experience in a particular country as part of our ranking.

The Behre Dolbear Group of companies is comprised of more than 150 professionals based out of 12 offices around the globe. The views expressed herein reflect the collective responses to our annual internal survey. Our professionals’ opinions are valued as they have the unique opportunity to conduct business and evaluate investments within many different countries. In 2012, Behre Dolbear completed 220 projects in over 55 countries.

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Pentagon orders an about-face on REEs – by Shane Lasley (North of 60 Mining News – March 31, 2013)

 http://www.petroleumnews.com/miningnewsnorth/index.shtml

Department of Defense reverses its public stance on rare earths, recommends building a US$130M stockpile of the strategic minerals

About face; forward; march! The U.S. Department of Defense recently issued this order in the field of rare earth elements.

The unique properties of REEs – a group of 17 previously obscure metals that include scandium, yttrium and the 15 lanthanides – are key ingredients in a number of military applications such as guided missiles, lasers, radar systems, night vision equipment and battlefield communications.

China is estimated to supply between 90 and 95 percent of the world’s rare earth oxides, according to a September 2012 report penned by Congressional Research Service.

Though these Sino-mined elements are key ingredients to much of the U.S. Military’s advanced weapons systems, Pentagon officials have never considered REEs rare enough to need a stockpile of them.

“I wouldn’t run out and buy a bunch of rare earths,” DoD Industrial Policy Director Brett Lambert proclaimed during a defense conference held in New York late in 2010.

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Press Release: Strategic Materials Advisory Council Cautions DoD against Stockpiling Chinese Rare Earths

http://www.strategicmaterials.org/

Strategic Materials Advisory Council – Thu, Mar 21, 2013 2:27 PM EDT

WASHINGTON–(BUSINESS WIRE)– The Strategic Materials Advisory Council today cautioned the Department of Defense to avoid the risky mitigation strategy of stockpiling strategic and critical materials from China. The Department of Defense recently completed its biannual “Strategic and Critical Materials 2013 Report on Stockpile Requirements,” which recommended stockpiling $120.43 million of heavy rare earth elements — materials produced only in China.

“The root cause of these material shortages is our ongoing dependence on Chinese suppliers,” said Council Executive Director Jeff Green. “While it is encouraging that DoD acknowledges these risks, we urge DoD to move from theoretical studies to the only appropriate and permanent solution — the creation and nurturing of a U.S. based rare earth supply chain.”

This rare earth stockpile recommendation represents over one-third of a $319.74 million stockpiling plan to mitigate a $1.2 billion shortfall of 23 strategic and critical materials. This encouraging recommendation contrasts dramatically with previous Department of Defense assessments that asserted domestic sources could meet all military requirements by 2013, except for yttrium, and that substitution would be a viable approach to risk mitigation for heavy rare earths.

Green added, “It is equally encouraging that the Department is acknowledging the increased acquisition cost and engineering challenges posed by substitution strategies. However the U.S. must not rely on research projects and substitution alone to close the current supply gap.

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The Pentagon’s Metals Gap – by Daniel McGroarty (The Strategic Materials Advisory Council – March 7, 2013)

http://www.strategicmaterials.org/

Click here for the Strategic and Critical Materials 2013 Report on Stockpile Requirements: http://www.mineralsmakelife.org/assets/images/content/resources/Strategic%20and%20Critical%20Materials%202013%20Report%20on%20Stockpile%20Requirements.pdf

It’s the last thing any Washington watcher would expect in the run-up to Sequestergeddon: a government agency proposing a new spending program. Yet that’s precisely what the Pentagon did last week, with the quiet release of its National Defense Stockpile Report to the Congress.

Even experts in the industry are hard-pressed to recall when the U.S. Government last added to its metals and minerals inventory — and for good reason. Since the implosion of the Soviet Union in December 1991, the U.S. defense stockpile has been treated as a kind of raw materials garage-sale, with nearly all metals marked for a phased sell-off — calibrated so as not to unduly undercut current metal prices.

Stockpile silver went to the U.S. Mint for the striking of silver dollars, an almost literal swords-into-plowshares swap. Other metals were sold to pay for the cost of erecting the World War II Memorial without having to appropriate federal funds. Still more metals were sold with the proceeds flowing back to the U.S. Treasury, where they were spent on whatever it is the federal government funds to the tune of $10 billion a day.

And why not, given the demise of the Soviet threat and the emergence of a global market not seen outside an economic textbook. Surely the U.S. could source metals and minerals from providers anywhere on the planet, for the right price.

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When China’s Military Rivals America’s, Metals Demand Could Really Rocket – by Taras Berezowsky (Metal Miner – September 28, 2012)

http://agmetalminer.com/

A lot of militaristic hullaballoo has come wafting from the East China Sea lately, and all we can really do is sit here in the middle of the US and enjoy the show.

Well, that and ruminate on when these recent goings-on will affect the industrial metals markets. You’ve all likely read about the continued chest-thumping over the uninhabited islands claimed by Japan (which calls them the Senkakus) and China (which calls them the Diaoyus).

Recently, the Economist reported that a fleet of Taiwanese fishing boats and patrol ships entered the disputed waters. A skirmish involving water-cannons broke out between Japanese and Taiwanese vessels before the Taiwanese left the area.

A much different type of boat, meanwhile, was unveiled in China. The northern port city of Dalian hosted the ceremony for the 58,500-ton ‘Liaoning,’ the refurbished Admiral Kuznetsov-class aircraft carrier acquired from Ukraine — China’s first.

“The military utility of China’s carrier programme is questionable – at least in the context of any future showdown with America. But it says quite a lot about how China sees itself and how it wishes others to see it,” reads an Economist article.

From a geopolitical standpoint, that’s likely to hold true – but what if China’s continued push to boost its military presence also boosts demand for the likes of steel plate, titanium alloys, and other such military-grade metals in the decades to come? Could that take the place of the current priority, infrastructure spending?

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No security for raw materials supply – by Richard Mills (Resource Investor – February 4, 2013)

http://www.resourceinvestor.com/?ref=nav

As a general rule, the most successful man in life is the man who has the best information

The truth, in regards to the world’s mineral resources, is that we in the western developed countries are not in control of supply. The map below was posted on reddit.com. While interesting it does not reveal the enormity facing the western world in regards to Security of Supply for many of our key minerals.

“The spectre of resource insecurity has come back with a vengeance. The world is undergoing a period of intensified resource stress, driven in part by the scale and speed of demand growth from emerging economies and a decade of tight commodity markets. Poorly designed and short-sighted policies are also making things worse, not better. Whether or not resources are actually running out, the outlook is one of supply disruptions, volatile prices, accelerated environmental degradation and rising political tensions over resource access.” Chatham House, Resources Futures

There are many serious concerns in regards to global resource extraction that we need to consider:

  • Resource nationalism/country risk, political instability of supplier
  • A looming skills shortage

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BRICS chafe under charge of ‘new imperialists’ in Africa – by Pascal Fletcher (Reuters India – March 26, 2013)

http://in.reuters.com/

DURBAN, South Africa – (Reuters) – “BRICS, Don’t Carve Africa” reads a banner in a church hall in downtown Durban where civil society activists have gathered to cast a critical eye at a summit of five global emerging powers.

The slogan evokes the 19th Century conference in Berlin where the predominant European colonial states carved up the African continent in a scramble historians see as epitomising the brash exploitative capitalism of the time.

Decades after Africans threw off the colonial yoke, it is the turn of the blossoming BRICS group of Brazil, Russia, China, India and South Africa to find their motives coming under scrutiny as they proclaim an altruistic-sounding “partnership for development, integration and industrialization” with Africa.

Led by that giant of the emerging powers, China, the BRICS are now Africa’s largest trading partners and its biggest new group of investors. BRICS-Africa trade is seen eclipsing $500 billion by 2015, with China taking the lion’s share of 60 percent of this, according to Standard Bank.

BRICS leaders persist in presenting their group – which represents more than 40 percent of the world’s population and one fifth of global gross domestic product – in the warm and fuzzy framework of benevolent South-South cooperation, an essential counterweight to the ‘old’ West and a better partner for the poor masses of the developing world.

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China leader’s first trip highlights growing clout of BRICS nations – by Geoffrey York (Globe and Mail – March 22, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

JOHANNESBURG — For a glimpse of a potential new world order, take a look at the carefully chosen plans for the first overseas trip by China’s new President.

Fresh from his triumph in China’s leadership transition this month, Xi Jinping won’t be paying his respects in Washington or Europe on his debut foreign tour. Instead, on Friday, he flies to Russia – and then onward to three resource-rich African countries, in a trip laden with symbolic and political meaning.

The centrepiece of Mr. Xi’s nine-day “diplomatic blitzkrieg,” as some in the African media are calling it, is the annual summit of the BRICS group of nations, to be held in the South African coastal city of Durban next week. The BRICS themselves are evolving into a political entity, offering China a chance to lead the group and campaign for a multipolar world where the West is less dominant.

Originally an economic bloc, BRICS – now comprising Brazil, Russia, India, China and South Africa – is venturing further into politics and security. The summit will feature an unexpectedly heavy agenda of global issues, from the Syrian war to the planned creation of a development bank to compete with the World Bank, with $50-billion in seed money.

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Goldman Sachs’ Jim O’Neill: BRICS ‘Have Exceeded all Expectations’ – by Erich Follath (Spiegel Online – March 21, 2013)

http://www.spiegel.de/international/

Jim O’Neill, who coined the acronymn BRIC for emerging nations, plans to leave his post at Goldman Sachs this year. In an interview with SPIEGEL ONLINE, he discusses the banking industry and why he still sees a bright future for China and Russia.

As chairman of Goldman Sachs Asset Management, Jim O’Neill is responsible for some $800 billion in assets. At the beginning of February, he made the surprise announcement that he would leave the bank by the end of this year.

O’Neill, 55, became well-known in 2001 for a paper in which he was the first to coin the acronomyn BRIC, for the developing nations of Brazil, Russia, India and China, which he predicted would be the great economic powers of the future. More recently, South Africa has also been frequently named as belonging to this circle.

The quintet, now called BRICS, accounts for about 40 percent of the world’s population and has long seen itself as a counterweight to established powers, such as the United States or the European Union. At the end of March, BRICS leaders are scheduled to meet in Durban, South Africa, as part of their search for a new world order and their role in it.

SPIEGEL: Mr. O’Neill, managing more than $800 billion in assets seems to be a challenging job. Why don’t you like it anymore?

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Why China is Tunneling a Mind-Boggling 800 Miles in 2 Years – by Frank Holmes (U.S. Global Investors – March 18, 2013)

http://www.usfunds.com/

Would it surprise you to discover that China is planning to add 800 miles to its subway system over the next two years? That’s the distance equivalent to building a network from Dallas to Chicago in less time than the U.S. Congress can resolve a budget!

In 2015, when the infrastructure build-out is complete, China’s subway track alone will be a mind-boggling 1,900 miles, according to JP Morgan.

The Asian giant has been in the midst of constructing the world’s largest transportation system, laying mile after mile of high-speed rail and subway track. According to the World Metro Database, Beijing and Shanghai currently have the longest metro and subway systems, with about 275 miles each. The city of Guangzhou in China also falls in the top 10, with 144 miles of rail, beating Paris’ network length of 135 miles.

This ambitious program is part of the pragmatic solution to help 1.3 billion residents move around the country efficiently and reduce the increasing problem of air pollution due to car emissions in big cities including Beijing.

The circulating reports and photos of Beijing’s smog have recently become a dark cloud hanging over the country’s remarkable achievements, but it’s not a new issue. In the winter, smog conditions can seem much worse.

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Why we’ll never see a $20 barrel of oil again – by Dambisa Moyo (Globe and Mail – March 16, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Dambisa Moyo is the author, most recently, of Winner Take All: China’s Race for Resources and What It Means for the World.

The commodity super-cycle – in which commodity prices reach ever-higher highs, and fall only to higher lows – isn’t over. Despite the euphoria around shale gas – indeed, despite weak global growth – commodity prices have risen by as much as 150 per cent in the aftermath of the financial crisis. In the medium term, this trend will continue to pose an inflation risk and undermine living standards worldwide.

For starters, there’s the convergence argument. As China grows, its increasing wealth and urbanization will continue to stoke demand for energy, grains, minerals and other resources. The U.S., for example, consumes more than nine times as much oil as China on a per capita basis. As more of China’s population converges to Western standards of consumption, demand for commodities – and thus their prices – will remain on an upward trajectory.

Worst-case estimates have China’s real GDP growing at 7 per cent a year over the next decade. The supply of most commodities, meanwhile, is forecast to grow by no more than 2 per cent annually in real terms. All else being equal, unless China’s commodity intensity (the amount of a commodity consumed to generate a unit of output) falls dramatically, its demand for commodities will be greater this year than it was last year.

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Brazil, China, India getting healthier, wealthier while we decline: UN report – by Olivia Ward (Toronto Star – March 15, 2013)

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

Move over, Canada — and France, Germany, Italy, Britain and the United States.

A new United Nations Development Program report, “The Rise of the South: Human Progress in a Diverse World,” says the “global North” is losing the race with its economic competitors in the rising South at a head-spinning rate.

“For the first time in 150 years, the combined output of the developing world’s three leading economies — Brazil, China and India — is about equal to the combined GDP of the long-standing industrial powers of the North,” says the report, released Thursday. “This represents a dramatic rebalancing of global economic power.”

Canada itself has slipped from 10th to 11th place in the 2013 human development index: a composite of health, education and income figures. Although its overall performance has improved steadily since 1980, its progress in education slowed, and it was outpaced by Japan and Australia.

The top five ratings went to Norway, Australia, the U.S., Netherlands and New Zealand. When gender inequality is factored in, Canada drops to 18th place and the U.S. plummets to 42nd. Netherlands, Sweden and Switzerland have the smallest male-female gaps in health, empowerment and labour market figures. With society-wide inequality accounted for, Canada ranks 13th.

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