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Commodity Super-Cycle and Decline

Rare Earth Elements and Strategic Mineral Policy – by Jaakko Kooroshy, Rem Korteweg and Marjolein de Ridder (2010)

This report was produced at the Hague Centre for Strategic Studies (HCSS) and TNO

Introduction

Newspapers report almost daily on international tensions around ‘strategic’ or ‘critical’ minerals such as rare earth elements. The temporary freeze of rare earth exports from China to Japan in retaliation of the capture of a Chinese sea captain near the disputed Senkaku islands in the East China sea is but one example of the strategic use of non-fuel minerals in international relations today.

Ensuring and safeguarding access to rare earth elements and other strategic mineral resources is quickly emerging as a strategic policy priority and a number of states are designing and implementing new policies aimed at increasing material security.

By analyzing the strategic mineral policies of three countries, the United States, the United Kingdom, and Japan, this report provides an insight into what drives policies on strategic non-fuel mineral resources.

Mineral policies do not develop in a vacuum.

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Pentagon in Race for Raw Materials – by Liam Pleven (Wall Street Journal – May 3, 2010)

The Wall Street Journal is an American English-language international daily newspaper. Published in New York City by Dow Jones & Company, the Journal has the largest newspaper circulation in the United States. Liam Pleven at liam.pleven@wsj.com

Stockpiling Minerals Takes on Greater Urgency as Global Supply Gets Squeezed

The U.S. military is gearing up to become a more active player in the global scramble for raw materials, as competition from China and other countries raises concerns about the cost and availability of resources deemed vital to national security.

The Defense Department holds in government warehouses a limited number of critical materials—such as cobalt, tin and zinc—worth about $1.6 billion as of late 2008. In the coming weeks, the Pentagon is likely to present a plan for Congress to overhaul its stockpiling program.

The new plan, dubbed the Strategic Materials Security Program by the Pentagon, would give the military greater power to decide what it stockpiles and how it goes about buying the materials. It would also speed up decision making at a time when military technology evolves rapidly, commodity markets swing widely and countries around the world fight to secure access to natural resources.

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India vies with China for influence in Africa – by Geoffrey York (Globe and Mail – May 23, 2011)

 The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media.

The latest global scramble for Africa, with China now in the lead, is escalating to new heights this week as India sends a planeload of gift-bearing political leaders to Africa in an effort to compete with Beijing’s fast-growing influence.

It would have been unthinkable a decade ago, but China and India are now emerging as key players in the African game, and both are boosting their presence so swiftly that they are becoming major competitors of the Western nations that traditionally dominated the continent.

Indian Prime Minister Manmohan Singh, accompanied by dozens of business executives and cabinet ministers, is arriving in Ethiopia this week for an Africa-India summit on a scale rivalling China’s recent summits with African leaders.

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Codelco Waning Copper Pressures $17.5 Billion Bet to Catch Boom – by Matt Craze (Bloomberg Markets Magazine – May 2011)

Bloomberg Markets magazine brings the inside view of professional investing with unparalleled access to the most influential people in global business and finance.

(Bloomberg) — Diego Hernandez, chief executive officer of Codelco, talks with Bloomberg’s Matthew Craze about the company’s financing plans and the outlook for the copper market. The world’s largest copper producer, may seek bank loans to raise the $600 million it needs to finance expansions at its Chilean copper mines this year, Hernandez said. (Source: Bloomberg)

Andres Avendano steps out of his Toyota Hilux pickup halfway down a 20-kilometer-long tunnel under Chile’s Chuquicamata copper mine. He lifts a cylindrical chunk of rock from the diamond-bit-studded drilling machine that extracted the sample.

“The copper is quite disseminated,” Avendano says, adjusting the light from his white hard hat to identify a sprinkling of gold-colored specks. In the mine’s early days, a similar specimen would have been brimming with the metal, he says.

Avendano, 33, who is in charge of mine design, and geologists from government-owned copper giant Codelco are searching around the clock for new deposits at Chuquicamata, Bloomberg Markets magazine reports in its June issue. The complex, 1,650 kilometers (1,025 miles) north of Santiago in the Atacama Desert, is so massive the open pit is visible from space.

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[Mining Sector] Labour-short Oz poaching Canucks – by Michael Madigan (Winnipeg Free Press – May 20, 2011)

Michael Madigan is the Winnipeg Free Press correspondent in Australia. He writes about politics for the Brisbane-based Courier Mail.

They’ve ravaged Calgary and pillaged Edmonton, and Canadians can be sure to see a whole lot more of them in the years ahead. Australian mining companies are turning corporate Vikings as they grow increasingly desperate for what has become a rare and precious resource — skilled labour.

That Canadian mining companies also resemble Norse seafarers in their own desperation to feed the insatiable appetite of Canada’s resource sector doesn’t faze the Australians.

The Australian organizer of a recent jobs fair in Canada, Rupert Merrick, says the globe’s booming energy sector is crying out for skilled workers, and all is fair in love and war.

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Thanks, we’ll take that [Resource Nationalism] – by Brenda Bouw (Globe and Mail – May 18, 2011)

 The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Brenda Bouw is the Globe’s mining reporter.

States looking to tax or even nationalize assets are threatening global mining interests

As Glencore International prepared its public listing, the world’s largest commodities trader warned the market that the Bolivian government was trying to wrestle more control of its mines.

The Bolivian government, under socialist President Evo Morales, is overturning mining and investment laws to increase state control over its economy. The government wants to renegotiate contracts with companies such as Switzerland-based Glencore and give state mining company Comibol a controlling role in joint ventures, forcing companies to return concessions, according to Bloomberg News.

Bolivia, which has also seized oil and gas assets since the current government took power in 2006, is just the latest in a growing list of nations revising laws to squeeze more profits from resource extraction within their borders during times of spiking commodities prices. Many are taking a larger grab through increased taxes and royalties.

Some are using more extreme measures, like nationalization or expropriation of assets.

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Commodities bloodbath ‘nothing to fear,’ mining tycoons say – by Lisa Wright (Toronto Star – May 17, 2011)

Lisa Wright is a business reporter with the Toronto Star, which has the largest circulation in Canada. The paper has an enormous impact on Canada’s federal and provincial politics as well as shaping public opinion. This article was originally published May 17, 2011.

The recent slide in metals prices — make that a slaughter in silver — has been pretty hard to stomach for the stampede of investors who have taken a shine to the gritty mining industry lately. But Peter Munk, Ian Telfer and Bob Gallagher aren’t reaching for the Rolaids.

Nor are they the least bit bearish after two rocky weeks that saw silver plummet by 35 per cent, gold dip under the $1,500 U.S. per ounce watermark and a sharp pull back in construction-friendly base metals from aluminum to zinc.

Many investors are squeamish after the gut-wrenching correction which dragged once-soaring silver squarely into bear market territory. (A 20 per cent decline from a market high is the unofficial definition of a bear market.)

In fact ‘poor man’s gold’, as it’s known, suffered its biggest four-day decline in 28 years earlier this month after hitting a peak of $48.70 U.S. in April. Silver slid another $1.85 again Monday, closing at $34.35 in London.

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Asian demand ‘tsunami’ to buoy commodity prices – Vale [Canada CEO Tito Martins predicts] – by Matthew Hill (Miningweekly.com – May 6, 2011)

Mining Weekly is South Africa’s premier source of weekly news on mining developments in Africa’s most important industry. Mining Weekly provides in-depth coverage of mining projects and the personalities reshaping the mining industry. In order to advance Mining Weekly’s objective of positioning itself as a leading global provider of mining news, a full-time correspondent is based in Toronto, Canada and another in Perth, Australia. 

If you look at it carefully it’s not a wave, it’s a tsunami. [Chinese urbanization] …
I see, for the long term, this scenario of scarcity to remain for at least five years …
I don’t believe producers will have capacity to cope with this huge movement in
urbanisation, people need raw materials…” (Tito Martins, CEO Vale Canada Ltd.
and Executive Director, Base Metals – May 6, 2011)

TORONTO (miningweekly.com) – The world’s second-biggest mining company, announcing record first-quarter profits, on Friday said a “tsunami” of Asian urbanisation would lead to shortages in iron-ore supply at least until 2016 as miners failed to keep pace with demand.

Basic materials executive Tito Martins said that debt problems in the US and Europe would not change this. “It’s a big wave coming. If you look at it carefully it’s not a wave, it’s a tsunami. The earthquake started maybe 10, 15 years ago, when China started moving huge quantities of people from the countryside to the city,” he commented on a conference call.

Martin echoed comments that Anglo-Australian miner Rio Tinto made earlier this year that China had accomplished a magnitude of industrialisation over the past two decades that had taken the Western World 250 years to accomplish.

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South Africa the unlikely new kid on the BRIC block- by Geoffrey York (Globe and Mail-April 14, 2011)

 The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media.

Mr. Zuma could scarcely conceal his exuberance as he expressed his gratitude to the Chinese leaders who had invited South Africa to join the BRIC group. But his presence at the summit is as much about politics as it is business. The club that invited him is increasingly positioning itself as a counterweight to the Western economies, and it needed to recruit an African member, no matter how small it might be on the global stage.

Economically, the BRIC group is already a success. The BRIC economies have grown so dramatically in the past few years that they could overtake the combined size of the G7 nations – the Western-dominated group of economies – within the next decade. Two of the four BRIC founders, China and Brazil, are now ranked among the world’s five biggest economies, with China overtaking Japan last year to rank behind only the United States in size.

Why, then, did they invite the world’s 27th-biggest economy to join their club? Jim O’Neill, the Goldman Sachs economist who coined the “BRIC” term in a 2001 research paper, said he is baffled by the decision to invite South Africa into the group. Other countries in the emerging world – including Indonesia, Mexico, Turkey and South Korea – are much bigger than South Africa, he noted. “It is tough to see how South Africa matches up to these four countries, never mind the BRIC countries,” he wrote in an early assessment.

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Resource Nationalism: The new global economic rent – by John Lee and Johan Erasmus

John Lee is Executive Director, Tax, Ernst & Young LLP and Johan Erasmus is Senior Manager, Tax, Ernst & Young LLP. This column was orginally published in December 2010.

The global financial crisis led to massive budget deficits as many governments injected cash to their economies by way of massive stimulus packages. At the same time, minimized tax collection during and after economic crisis reduced government revenues dramatically.

The relatively swift rebound of the mining and metals industry attracted the attention of deficit-strapped governments and resulted in the industry becoming an early target to replenish national treasuries.

Our company’s report Business Risks Facing Mining and Metals identifies resource nationalism as the fourth-greatest strategic business risk the sector is facing (up from ninth place in 2009). The report identifies how mineral-rich countries are renewing efforts to ensure that they are extracting sufficient economic rent, including royalties, taxes and duties, for the right of a mining company to exploit their resources.

In some instances, governments are even looking to replace and repair other areas of lost revenue with further imposts on the sector, obtaining a larger share of higher mineral prices.

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The Paradigm Shifts: Global Imbalances, Policy, and Latin America – Mark Carney – Governor of the Bank of Canada Calgary [Commodities] Speech (March 26, 2011)

Remarks by Mark Carney – Governor of the Bank of Canada – Inter-American Development Bank, Calgary, Alberta (26 March 2011)

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“Commodity markets are in the midst of a supercycle. …This surge in demand is the result of rapid growth in the emerging world, particularly in Asia. …Rapid urbanization underpins this growth. Since 1990, the number of people living in cities in China and India has risen by nearly 500 million, the equivalent of housing the entire population of Canada 15 times over. …Even though history teaches that all booms are finite, this one could go on for some time.” (Governor of the Bank of Canada – Mark Carney, March 26, 2011)

Introduction

Globalization is the opportunity and the challenge of our age. It has the potential to lift billions out of poverty, vastly expand economic prospects, and develop a more diverse and resilient global economy. However, globalization also brings stresses, so policy-makers will need both discipline and new frameworks to realise its promise.

The financial crisis has accelerated the shift in the world’s economic centre of gravity. Emerging-market economies (EMEs) now account for almost three-quarters of global growth—up from just one-third at the turn of the millennium.

Although this paradigm shift to a multipolar world is fundamentally positive, it is also disruptive. Labour, capital and commodity markets are changing rapidly. The effective global labour supply quadrupled between 1980 and 2005 and may double again by 2050.1 Cross-border capital flows have exploded, growing at a rate almost seven times the peak during the last wave of globalization.2 Commodity markets are in the midst of a supercycle.

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Governments should fund railroad to Ontario’s Ring of Fire mining camp – by Stan Sudol

Temiskaming & Northern Ontario Railway at the turn of the last century

This column was published in the March 17, 2011 issue of Northern Life.

Stan Sudol is a Toronto-based communications consultant who writes extensively on mining issues. stan.sudol@republicofmining.com

For an extensive list of articles on this mineral discovery, please go to: Ontario’s Ring of Fire Mineral Discovery

“In the next 25 years, demand for metals could meet or exceed what we have used
since the beginning of the industrial revolution. By way of illustration, China needs to
build three cities larger than Sydney or Toronto every year until 2030 to accommodate
rural to urban growth.” (John McGagh, Rio Tinto – Head of Innovation)

Commodity Super Cycle is Back

The commodity super cycle is back, and with a vengeance. China, India, Brazil, Indonesia and many other developing economies are continuing their rapid pace of industrialization and urbanization. In 2010, China overtook Japan to become the world’s second largest economy and surpassed the United States to become the biggest producer of cars.

During a recent speech in Calgary, Mark Carney, the Governor of the Bank of Canada remarked, “Commodity markets are in the midst of a supercycle. …Rapid urbanization underpins this growth. Since 1990, the number of people living in cities in China and India has risen by nearly 500 million, the equivalent of housing the entire population of Canada 15 times over. …Even though history teaches that all booms are finite, this one could go on for some time.”

At the annual economics conference in Davos, Switzerland, held last January – where the most respected world leaders in politics, economics and academia gather – the consensus was one of enormous global prosperity predicting that, “For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously…”

John McGagh, head of innovation, at Rio Tinto – the world’s third largest mining company – has said, “In the next 25 years, demand for metals could meet or exceed what we have used since the beginning of the industrial revolution. By way of illustration, China needs to build three cities larger than Sydney or Toronto every year until 2030 to accommodate rural to urban growth. This equates to the largest migration of population from rural to urban living in the history of mankind.”

The isolated Ring of Fire mining camp, located in the James Bay lowlands of Ontario’s far north, is one of the most exciting and possibly the richest new Canadian mineral discovery made in over a generation. It has been compared to both the Sudbury Basin and the Abitibi Greenstone belt, which includes Timmins, Kirkland Lake, Noranda and Val d’Or.

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Yes Virginia, there is a commodity super-cycle (August 3, 2007) – Stan Sudol

This column was originally published in the August 3, 2007 issue of Northern Life.

Stan Sudol is a Toronto-based communications consultant who writes extensively on mining issues. stan.sudol@republicofmining.com

Emerging economies are growing at record levels

Sometimes when it looks, sounds and walks like a duck…then it is duck! The continuing decline in the price of some metals including nickel has many analysts clucking that this mining boom is over.

That is definitely not the case according to Europe’s top-ranked natural resources investor BlackRock Merrill Lynch Investment Managers. Blackrock is one of the world’s largest publicly traded investment management firms with assets of about $1.23 trillion (US). Let me emphasis that the figure is trillion not billion!

Evy Hambro, who manages Blackrock’s World Mining Fund, recently said in Britain’s Telegraph newspaper, “We find it astonishing that, six years into a cycle, the analysts are still getting it wrong. They have been too pessimistic for six years in a row and seem to be behaving like desperate gamblers, always betting on the same number.”

According to Hambro, the four emerging giant economies – the BRIC (Brazil, Russia, India and China) countries – will need more oil, aluminum and copper by 2015 than the entire planet used last year. According to current projections, the BRIC countries alone will need 121 percent of oil, 140 percent of aluminum and 105 percent of copper produced globally last year.

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The not-new, not-a-cycle mining supercycle – by David Robinson

Dr. David Robinson is an economist at Laurentian University in Sudbury, Canada. His column was originally published in March 2011 issue of Sudbury Mining Solutions Journal a magazine that showcases the mining expertise of North Bay, Timmins and Sudbury.  drobinson@laurentian.ca

Mr. Keynes had it right: the financial community is very, very emotional. We are barely climbing out of what many were calling the great recession, and suddenly a flock of bankers and business reporters are babbling about a new economic supercycle.

Well, I have news for them. There is no new supercycle. Don’t run off and sell all your mining stocks, though. This isn’t bad news – it’s just a better way of understanding the good news.

To start with, the supercycle isn’t new. Even Gerard Lyons, the guy who wrote The Supercycle Report, shows the cycle starting in 2000. It is the same old supercycle that we were talking about five years ago in this space.

Second, it isn’t a cycle. An interesting thing about the figures from Gerard Lyons is that they show a gradually rising growth rate, not a series of cycles. Each of the so-called high cycles got a bit higher.

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