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Commodity Super-Cycle and Decline

Supply constraints remain many commodities’ key driver – E&Y – by Dorothy Kosich (Mineweb.com – December 3, 2012)

http://www.mineweb.com/

Mining’s demand outlook remains strong, and with the policy-induced soft landing in China, the picture for mining coming into next year is bright—says Ernst & Young.

RENO (MINEWEB) – “The fundamental demand story for mining and metals remains strong and we are already seeing an increase in growth in the Chinese economy, with expectations that this will be maintained in 2012,” says Ernest & Young’s Global Mining & Metals Leader, Mike Elliott.

“While we remain confident in the outlook for demand, we are more concerned about how the current hiatus in new capital approvals will impact future supply,” he added. “Supply constraints remain the key driver for many commodities in the medium to longer term, particularly iron ore, copper and lead.”

“There will need to be higher price signals to attract investment for new supply to meet longer term demand,” he stressed.

In a news release issued today, Elliott suggested the “volatility created by the global economic roller-coaster over the past 12 months, and the cost blowouts in the sector from the rapid expansion in recent years has created a very different operating environment for miners coming in 2013.”

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China’s economy on the upswing; world markets climb – by Carolynne Wheeler (Globe and Mail – December 3, 2012)

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.

BEIJING — Amid European gloom and the looming U.S. fiscal cliff, the Chinese economy appears to be regaining its momentum.

Two separate purchasing managers’ indices ticked up last month: an official state measure released over the weekend reached 50.6, a seven-month high, while a separate tally by HSBC hit a 13-month high, at 50.5.

It’s not often that the two numbers so closely intersect, since one is more heavily weighted toward state-owned enterprises and the other toward the smaller private sector, and suggests the economic winds are changing for China despite external forces.

World stock markets rose Monday on the data. European stocks opened higher. Britain’s FTSE 100 rose 0.4 per cent to 5,892.73. Germany’s DAX added 0.5 per cent to 7,440.67 and France’s CAC-40 advanced 0.5 per cent to 3,575.95.

Wall Street appeared headed for a session of modest gains, with Dow Jones industrial futures rising 0.1 per cent to 13,025 and S&P 500 futures adding 0.1 per cent to 1,416.

“The final November manufacturing PMI stood at a 13-month high of 50.5 on increasing new business and expanding production.

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BRICS mining: the lay of the land – by Chris Lo (Mining Technology.com – January 5, 2012)

http://www.mining-technology.com/

The so-called BRICS nations (Brazil, Russia, India, China and South Africa) are the world’s emerging powerhouses, in more ways than one. As well as exerting an ever-growing influence on the global political stage, these burgeoning economies are building up an industrial base that is closing the gap with the developed western world – or, in some cases, even surpassing it.

No sector illustrates this process better than mining. Competition from low-cost, large-scale mining projects in the BRICS nations has simply been too much for many European and US operations, which are struggling with higher overhead costs and more complex regulatory regimes. As a consequence, countries such as Brazil and China have become hotbeds for international investment.

BRICS countries look outward

BRICS mining investment, however, isn’t just a one-way street – increasingly, these countries are looking to tap into overseas resources in addition to their own domestic deposits. Indian companies including Adani Mining and Lanco Infratech have been assertively investing in Australian coal mining projects, while Brazilian iron ore giant Vale’s funding of iron ore projects in China proves that there are lucrative opportunities in inter-BRICS investment.

In Africa, BRICS countries, particularly China, are becoming more prevalent as investors in new mining projects, both for profit and to provide materials for massive infrastructure and construction projects.

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With China and India Ravenous for Energy, Coal’s Future Seems Assured – by Peter Galuszka (New York Times – November 12, 2012)

http://www.nytimes.com/

RICHMOND, Va. — Last summer, nearly half of India’s sweltering population suddenly found the electricity shut off. Air-conditioners whirred to a stop. Refrigerators ceased cooling. The culprits were outmoded power generation stations and a creaky electricity transmission grid.

But another problem stood out. India relies on coal for 55 percent of its electric power and struggles to keep enough on hand.

Coal remains a critical component of the world’s energy supply despite its bad image. In China, demand for coal in 2010 resulted in a traffic jam 75 miles long caused by more than 10,000 trucks carrying supplies from Inner Mongolia. India is increasing coal imports.

So is Europe, as it takes advantage of lower coal prices in the United States. Higher-priced natural gas on the Continent is creating demand for more coal imports from the United States, where coal is taking a drubbing from less expensive natural gas.

Coal may seem an odd contender in a world where promising renewable energy sources like solar, wind and hydroelectric power are attracting attention. Anathema to environmentalists because it creates so much pollution, coal still has the undeniable advantages of being widely available and easy to ship and burn.

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What’s holding Ontario back? – by Gordon Nixon and Kevin Lynch (Globe and Mail – November 7, 2012)

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.

Ontario – Northern Ontario, in particular – is rich in natural resources.
Northern development is one of Ontario’s great economic opportunities. With
industrial production surging in developing economies, demand for these
resources is high, and we need to capitalize on opportunities across the
value chain. (Gordon Nixon and Kevin Lynch)

Gordon Nixon, CEO of the Royal Bank of Canada, is chair of Ontario’s Jobs and Prosperity Council. Kevin Lynch, vice-chair of BMO Financial Group, is vice-chair of the council.

The world has changed, and Ontario must adapt or fall behind. Emerging economies are driving a new era of intense global competition. The Internet and information revolution have made the world smaller, entrenching globalization and accelerating the pace of change. Developed economies are mired in the aftermath of the worst financial crisis and global recession since the 1930s, and many of the advantages that underpinned their prosperity have vanished.

Developed economies across the world must reinvent themselves to compete and win in the new global marketplace. Ontario is no exception – the status quo is not an option.

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Banks struggle to adapt or survive in commodities – by Dmitry Zhdannikov (Reuters U.S. – November 5, 2012)

http://www.reuters.com/

LONDON – (Reuters) – Stick, twist or fold? Like card players, the top five banks in global commodities trade have reached the point where they must decide to hold strategy, adapt, or give up and get out.

The boom in resource markets that started 10 years ago attracted many big banks to trade oil, metals and agriculture, but the 2008 financial crisis forced a painful retreat and tighter regulation now means some banks may throw in the towel.

Decisions rest on whether the banks believe their business models can be changed to keep them sufficiently profitable under the rising oversight of regulators, after four years when their revenue from commodities was halved.

“The total wallet back at the peak was about $14 billion for the banking sector in commodities trading. I’d imagine this year it’ll be about $7 billion. There were 10-14 banks when it was at $14 billion, now there are really five relevant ones,” said David Silbert, who leads commodities trading at Deutsche Bank.

Deutsche, together with Barclays and J.P. Morgan, broke into the commodities arena in the last decade with acquisitions or aggressive growth to challenge established veterans Goldman Sachs and Morgan Stanley.

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Australia in the Asian Century White Paper (October 2012)

Executive Summary

Asia’s rise is changing the world. This is a defining feature of the 21st century—the  Asian century. These developments have profound implications for people everywhere.

Asia’s extraordinary ascent has already changed the Australian economy, society and strategic environment. The scale and pace of the change still to come mean Australia is entering a truly transformative period in our history.

Within only a few years, Asia will not only be the world’s largest producer of goods and services, it will also be the world’s largest consumer of them. It is already the most populous region in the world. In the future, it will also be home to the majority of the world’s middle class.

The Asian century is an Australian opportunity. As the global centre of gravity shifts to our region, the tyranny of distance is being replaced by the prospects of proximity. Australia is located in the right place at the right time—in the Asian region in the Asian century.

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Understanding commodity super-cycles – by Van’t Veld (Troy Media – May 15, 2012)

http://www.troymedia.com/

Will Van’t Veld is an economist with ATB Financial.

Why they start and why they end

EDMONTON, AB, May. 15, 2012/ Troy Media/ – Canada’s political and business leaders obviously think we’re at the front-end of a commodity super-cycle and they’re trying to put in place policies and infrastructure so that Canada can take full advantage. But what exactly is a commodity super-cycle?

Capitalism is incredibly efficient at producing wealth, but unfortunately society hasn’t figured out how to keep every expansion phase from ending in an unpleasant contraction phase. This is the business cycle and there may be multiple business cycles that occur within each commodity super-cycle.

How does a super-cycle begin . . . and end? A commodity super-cycle occurs over multiple decades during which the rise in commodity prices is observed across the board, before declining for a long period. This is the definition given by economists Bilge Erten and Jose Ocampo, who wrote an interesting working paper on the topic for the United Nations Department of Economic and Social Affairs entitled, Super-cycles of commodity prices since the mid-19th century.

Of interest here is what gets the commodity super-cycle going and why it ends. According to Erten and Ocampo, it’s a rapid shock to demand that starts the cycle.

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The way the nation lives: Canada bets its buck on commodities – by James Munson (iPolitics – October 2012)

 iPolitics is independent, non-partisan and committed to providing timely, relevant, insightful content to those whose professional or personal interests require that they stay on top of political developments in Ottawa and the provinces.

RepublicOfMining graciously thanks iPolitics deputy editor Ian Shelton and writer James Munson for allowing this very insightful and timely content to be posted on this Blog – Stan Sudol

Commodity Supercycles

Speaking on the phone from Haifa, Israel last month, Natural Resources Minister Joe Oliver didn’t hide his government’s bout of commodities fever.

“As I’ve mentioned before, Canada is undertaking many major mega projects,” said Oliver, who was in Israel to secure energy partnerships with the Jewish state. “Over the next 10 years, we could see 500 projects with half a trillion dollars at stake.”

“No other country in the world is undertaking energy and mining projects at this scale or at this pace, creating a truly once in a generation opportunity for investors,” he said.

He was echoing his boss, Prime Minister Stephen Harper, who used the Summit of the Americas in Cartagena, Columbia in April to expound at resource development’s “vast power to change the way a nation lives.”

“Our natural resource sector is of vital importance in ensuring solid job creation and economic growth in Canada,” he said a month after putting forth a budget that deregulated much of Ottawa’s oversight over resource projects, a move that will heighten energy and mining’s already important stature in the Canadian economic pantheon.

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How to become better hewers of wood and drawers of water – by James Munson (iPolitics.com – October 9, 2012)

http://www.ipolitics.ca/

Outside advice keeps pouring in as Canada tiptoes closer to becoming a commodity economy, and nothing has provided such a wide-ranging shake-up as a report released this week by the Canadian International Council.

A carbon tax, more provincial sovereign wealth funds, looser foreign investment restrictions and fewer temporary foreign workers are just some of the policies inside The 9 Habits of Highly Effective Resource Economies, a report released by the CIC Tuesday.

The report’s author Madelaine Drohan looked around the world at how countries govern their resources and posed the question: how can Canada better manage its natural resource wealth?

“There was no perfect model,” said Drohan, who spoke to over 160 people during a five-month break from her day job as a Canadian contributor to The Economist to find the answer. But she said she did find worldwide trends in resource governance that Canada, despite having many isolated policies related to resources, ignores at its peril.

“We like to put things in discrete silos and you can’t really do that with resources because there’s political and social (issues),” said Drohan. “This doesn’t just involve the Natural Resource Department. It involves Foreign Affairs and Environment and the Finance Department.”

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The 9 Habits of Highly Effective Resource Economies: Lessons for Canada – by Madelaine Drohan (Canadian International Council Policy Report – October 5, 2012)

Madelaine Drohan is the Canada correspondent for The Economist and contributes regularly to its sister company, the Economist Intelligence Unit. For the last 35 years, she has covered business and politics in Canada, Europe, Africa and Asia. She has written in the past for The Financial Times (UK), appeared as a commentator on BBC Radio (UK), ABC Radio (Australia) and CBC Radio, and worked in Canada for The Globe and Mail, The Financial Post, Maclean’s, and The Canadian Press.

For the entire report click here: The 9 Habits of Highly Effective Resource Economies: Lessons for Canada

Executive Summary

Hewers of wood and drawers of water have had a bad image since Joshua cursed the Gibeonites and condemned them to those labours. Some of that biblical taint lingers in Canada. Fur, fish, wood, and minerals may have shaped this country, but for much of the 20th century, natural resources were largely regarded as part of the old economy, best left behind as Canada raced toward a glittery high-tech future.

That future did not arrive. Instead, the global commodity boom that began in 2003, fuelled by industrialization and urbanization in emerging economies, made the resource sectors important again.

Last year, the top Canadian merchandise export to every one of its major trading partners was a natural resource. This unexpected revival of the resource economy is one reason governments in Canada have come late to the realization that they must be more deliberate and united in their approach to resource development if they are to spread the wealth, not just over regions but also over generations.

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Resources: The flashpoint of 2015’s election – by John Ibbitson (Globe and Mail – October 8, 2012)

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.

The federal election of 1988 was so important that both sides agreed the very future of the country was at stake. The federal election of 2015 could be of similar nature. Then, the issue was trade. This time it could be resources.

The government and the opposition are dividing, with increasing bitterness, over whether and how Canada should exploit its resource wealth – especially petroleum. The question encompasses jobs, the environment, international relations, and regional growth and decline.

“The real issue is the vision of the future economically and environmentally,” NDP natural resources critic Peter Julian said in an interview. “These are the kinds of issues that will be front and centre in the next campaign.”

Twenty-five years ago last Thursday, as many have noted, Canada and the United States signed a free-trade agreement. But the country was bitterly divided over that issue, as well, ultimately forcing Brian Mulroney’s Progressive Conservative government to call – and win – an election.

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A nine-step plan to fix Canada’s resource economy – by Barrie McKenna (Globe and Mail – October 6, 2012)

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.

OTTAWA — Canada will never be a true resource superpower until it shuns “rip-and-ship” extraction, embraces sustainability and shares the wealth with future generations.

Those are among the key conclusions of a provocative new report by the Canadian International Council, entitled “Nine Habits of Highly Effective Resource Economies.” Canada has won the “geological lottery,” with vast stores of resources that the world craves, but it risks squandering that inheritance because it lacks a clear national plan to exploit them wisely, the CIC says.

The foreign affairs think tank points to Norway, Sweden, Finland and Australia as the best examples of countries successfully leveraging their resources for maximum economic and social benefit.

“Other resource producers do a better job of collaborating, of finding a balance between environmental protection and the economy, of adding, building, or extracting value from their resources, of saving for future generations, and of being strategic about resource development,” according to the report, written by Madelaine Drohan, The Economist’s Canadian correspondent and former Globe and Mail reporter. “There are smaller countries with fewer resources than Canada that punch far above their weight on the global stage.”

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China denies it is “gobbling up” India’s iron ore – by Shivom Seth (September 24, 2012)

www.mineweb.com

An exhaustive report into illegal mining in the Indian state of Goa has also accused China of using up all of India’s iron ore reserves.

MUMBAI (MINEWEB) – The China Iron and Steel Association has rejected assertions that it is to blame for “gobbling up India’s iron ore reserves” while, at the same time strategically choosing not to mine its own deposits of the metal.

The charges were laid at the feet of the Asian giant by a report into illegal iron ore mining in Goa by the Justice M.B. Shah Committee. The report, which pegged Goa’s mining scam at nearly $6.5 billion, also noted that “China had strategically stopped short of tapping its deposits of 200 billion tonnes”…and suggested that the “Central government should consider banning exports of Indian ore.”

It added, “Planning and conservation of iron ore for at least 50 years is required for Goa so that future generations may not be required to import entire steel from China and likewise countries.”

The report added that while India was exporting ore to China, China was exporting steel back to India and had stopped tapping its domestic deposits. “It would not be out of context to state here that China…prefers to import from countries like India and others.

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Huge potential in China deal – by John Ivison (National Post – September 25, 2012)

The National Post is Canada’s second largest national paper.

Four in 10 Canadians see China as a threat, if opinion polls are to be believed. Seven in 10 oppose approval of the $15.1-billion bid by China’s CNOOC for Calgary oil company, Nexen.

For a prime minister in need of a bump in his approval ratings, it must be tempting to go for the political sugar by nixing the Nexen deal. This was clearly the fear of China’s ambassador in Ottawa, Zhang Junsai, who is urging that the deal be judged solely on business terms. “If we politicize this, we can’t do business,” he told the Globe and Mail.

But for the Harper government to bow to its baser political instincts would be to put short-term political self-interest ahead of the long-term prosperity of the country. There appear to be no reasons of any substance to blow up the transaction.

The Industry department is weighing whether the Nexen purchase is of “net benefit” to Canada. This is pretty simple arithmetic, given the 66% premium CNOOC is willing to pay Nexen’s shareholders. Much of that money will be re-invested in the Canadian economy – a net benefit by any measure.

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