Commodity Super-Cycle and Decline

This article was originally posted on the http://www.businessweek.com/ website on January 23, 2010.

Jan. 24, 2011 (Bloomberg) — 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, driving bond yields and commodity prices higher.

The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.

With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.

Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.

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PricewaterhouseCoopers (PwC) firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Click here to view: Mine Back to the Boom…

London, 25 May 2010 — The beginning of 2009 saw commodity prices continuing to fall globally, tough price negotiations with customers and challenging market conditions. However, companies responded swiftly and decisively: funding was restructured, mines were closed and production cut as margins declined. However, in contrast, the year ended with the market capitalisation of the Top 40 returning to the heights of 2007 and a cautious optimism returning to the, according to PricewaterhouseCoopers’ seventh annual review of global trends in the mining industry – Mine, Back to the Boom.

Tim Goldsmith, global mining leader, PricewaterhouseCoopers comments:

“Although 2009 saw overall revenues decline, a drop in net profit and a decrease in cash flow in the industry, none of the Top 40 companies were subject to bankruptcy or voluntary administration provisions. This was largely due to their ability to remove their debt overhang, strengthening commodity markets over the year and the positive impact of government stimulus packages around the world.

“On the other hand, there were no significant transactions completed during the year – pointing to a potential missed opportunity for those that may have had the available financial resources. 

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PricewaterhouseCoopers (PwC) firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Click here to view: Total Tax Contribution

London, 3 JUN 2010 — The taxes and other contributions to government that mining companies pay are an important element in the creation of prosperity and stability of the countries in which they operate. However, the full extent of this contribution is not always recognised. PricewaterhouseCoopers’ second Total Tax Contribution (TTC) study of the global mining industry aims to bring greater transparency to the full economic contribution that these companies make by providing data on all taxes and other payments made to government.

The results show that mining companies make a large economic contribution to public finances in relation to the size of their operations. On average, the companies participating in the study paid an amount equivalent to 15.3% of their turnover to government, comprising 10.8% in amounts borne and 4.5% in amounts collected. These companies pay many other taxes and contributions in addition to corporate income tax which, on average, represents only 40% of all the taxes and contributions they bear. For every $1 of corporate income tax paid, these companies pay another $1.50 in other taxes and contributions borne, plus $0.52 in taxes collected.

Susan Symons, global Total Tax Contribution leader, PricewaterhouseCoopers comments:

“There is increasing pressure on both government and business to increase transparency in the extractive industries, with a call for companies to ‘publish what they pay’, and for governments to ‘publish what they receive’, and how they use these revenues.

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PricewaterhouseCoopers (PwC) firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Click here to view: The World in 2050 (January 2011 Report)

London, 7 Jan 2011 — The global financial crisis has accelerated the shift in economic power to emerging economies, says a report published by PwC today.

This is one of the conclusions from the latest in the series of PwC’s ‘The World in 2050’ reports. Measuring GDP at purchasing power parities (PPPs) – which corrects for the fact that price levels tend to be lower in emerging economies – the analysis shows that the E7 emerging economies (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) are likely to overtake the G7 economies (US, Japan, Germany, UK, France, Italy and Canada) before 2020.

If instead we use GDP at market exchange rates (MERs), then the shift in the economic world order is slower but equally inexorable, with the E7 projected to overtake the G7 around 2032. China would also overtake the US in that same year to become the biggest economy in the world based on GDP at market exchange rates, although on a PPP basis this would be likely to occur before 2020. This is even allowing for some slowing of China’s growth rate over time due to its one child policy and the fact that, as it catches up with the US, it must rely more on innovation than imitation to sustain further growth.

The table below summarises some of the key estimated overtaking dates for the E7 economies relative to the G7. We can see that these always occur later when using market exchange rates than PPPs, but even on an MER basis there is an inexorable process of the new world order replacing the old over the next four decades. While precise overtaking dates are clearly subject to many uncertainties, and some emerging countries may fail to realise their full growth potential, the general pattern should be robust assuming no catastrophic political or environmental shocks that permanently throw the world off its current economic development path.

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For a more detailed discussion of each of the top ten issues that Deloitte’s global network of mining professionals believe will influence the mining sector most in the coming year, read the full report. Tracking the Trends 2009

December/2008 – The financial crisis that came to define the latter half of 2008 brought the turmoil of unprecedented uncertainty to both the private and public sectors. Resource companies in particular were especially impacted, reliant as they are on buoyant commodity prices, which after a series of record highs in the earlier half of the year have since plummeted to fresh lows. As 2009 drew near, the one question on everyone’s mind surely was, “What’s next for the mining industry?”

“Mining companies believed in a super-cycle, but like all cycles, it came to an end,” says Glenn Ives, leader of Deloitte’s North American   Mining  practice. “While companies could not foresee the liquidity crisis that caused commodity price declines, those that react most quickly will be positioned to win in the next cycle.”

Tracking the trends 2009 is a report that identifies the ten most pressing global challenges facing the mining industry today and offers thoughts and strategic advice toward addressing them. From volatile markets and operating cost pressures to regulatory compliance and carbon permitting, the report is intended to help executives chart their companies’ courses over the coming months.

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For a more detailed discussion of each of the top ten issues that Deloitte’s global network of mining professionals believe will influence the mining sector most in the coming year, read the full report. Tracking the Trends 2010

Deloitte report recommends cautious expansion and forward-looking approach 

Toronto, December 15, 2009 — Volatility seems a mild word to apply to what has been happening in the mining sector over the past year. Deloitte today released a new report showing that, given the continued uncertainties facing the mining sector, the winners will be the companies that learn to manage volatility more effectively by adopting an integrated, forward-looking approach that defines responses to a range of anticipated futures.

“In an industry as notoriously cyclical as mining, more than ever before, organizations must have sufficiently flexible strategies to weather both market upswings and downswings,” says Glenn Ives, North American Mining Leader, Deloitte. “Achieving this flexibility requires advance planning for various potential risks and scenarios. Without this approach, many companies are bound to experience project delays, talent shortages, and spiraling costs as demand recovers — which could ultimately result in an endless series of boom and bust cycles.”

According to a new Deloitte report, Tracking the Trends 2010: A look at 10 of the top issues mining companies will face, mining industry activity has often been disproportionately influenced by short-term outlooks. When commodity prices were hitting record highs two years ago, optimism was expressed with almost giddy expansion as companies rushed to develop and build even marginal, and often technically complex, assets. The result was a precipitous increase in costs for raw materials, energy, equipment, supplies, and labour. When commodity prices subsequently dropped in the wake of the downturn, saddled with committed capital expenses at suddenly uneconomical prices, mining companies turned cost containment into a mantra and began cutting across the board, shedding non-core, and in some cases, high-quality assets, halting production, scaling back workforces, and putting deals on hold.

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Obtain a copy of the report: For a more detailed discussion of each of the top ten issues that Deloitte’s global network of mining professionals believe will influence the mining sector most in the coming year, read the full report. Tracking the Trends 2011

Toronto, December 1, 2010—As emerging economies around the globe continue their rapid industrialization, demand for commodities is skyrocketing. Yet at the same time, numerous countries are taking steps to safeguard their own supply by curbing the export of natural resources and shutting down some traditional supply markets. According to a new report released by Deloitte today, this is doing more than affecting commodity prices. It is changing the way mining companies do business.

“With the combination of surging commodity prices, labour shortages, and more demand than supply, one can almost imagine that we are back in the heyday of the mining boom,” says Glenn Ives, North American Mining Leader and Chair of Deloitte Canada. “But today’s demand drivers are significantly different than they were in the past and mining companies need to change the way they pursue growth if they hope to keep pace.”

Over the past 18 months, the axis of the world has shifted according to Deloitte’s third annual global mining report, “Tracking the Trends 2011: The top 10 issues mining companies face in the coming year.” As demand grows from emerging economies, the flow of commodities is increasingly moving to non-Organization for Economic Co-operation and Development (OECD) nations. The report explains, however, that although the developing economies’ strong appetite for commodities is sending demand signals to the mining industry, these are being muffled by the difficulties of obtaining permits for new mines and finding skilled labour.

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Download “The Super-cycle Report”

London, 15 November 2010: The world is in a sustained period of high economic growth, or super-cycle, which started in 2000 and is expected to last at least another couple of decades and see the global economy reach over USD 300trn in size by 2030, up from USD 62trn today, according to a special report by Standard Chartered. The world economy has already doubled between 2000 and 2010.

The developed economies will do well through the super-cycle, but the emerging markets will do much better. As a result, the global balance of economic power will shift decisively from the West to the East, according to the report.

The key drivers

The key drivers of the super-cycle will be increased trade, especially among emerging markets, rapid industrialisation, urbanisation and booming middle classes in the developing world. The number of people living in the cities will grow to 5bn in 2030, up from 3.4bn today.

Asia will drive most of the global growth over the next 20 years, during which global output is conservatively set to more than double in real terms, having already risen more than 50 per cent in the last decade. Living standards, as measured by real per capita income, will have increased nine-fold in China and India between 2000 and 2030.

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