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The bull market for commodities that made 2010 a banner year for mining and mining exploration is likely to continue throughout 2011, according to three panelists who addressed the question at a recent forum in Vancouver, Canada.
“The World of Mining and Precious Metals,” organized by Business Without Borders, invited leading Canadian economist Jeff Rubin, Leo Abruzzese, a commodities expert with The Economist Intelligence Unit (EIU), and James Steel, a commodities research analyst with HSBC, to talk about the 2011 outlook for commodities prices.
Abruzzese said even with last year’s volatility in commodities markets, with copper for example dropping 10 per cent during the Greek debt crisis then surging 30 percent as the world began to pull itself out of recession, “a lot of good news is priced into the market.” According to the EIU, that means an 8-9% increase in aggregate metals prices in 2011.
While metals prices went on a tear in 2010, increasing by 40%, Abruzzese said 2011 will see slower growth due to an expected rise in interest rates in China as its central bank moves to curb inflation.
“Any efforts to slow China down will reduce demand for metals,” he said, citing the housing sector’s demand for copper and steel as the most pertinent example.
Commodity prices this year will be driven primarily by insatiable demand for base and precious metals from the world’s two largest developing economies, said economist Jeff Rubin.
“It doesn’t matter whether we’re talking about oil, coal or potash prices, the two economies that are driving all the demand — India and China — contain 40 percent of the world’s population. Their economies are moving from third world to first world living standards,” said Rubin, the former chief economist with CIBC World Markets and author of “Why Your World is About to Get a Whole Lot Smaller.”
Rubin said the commodities expansion won’t be derailed by the European debt crisis or the prospect of a Chinese slowdown — “the two bogie men in the financial markets” — because the demand for commodities isn’t coming from Spain or Ireland, and the Chinese government has no intention of snuffing out double-digit annual growth rates.
“Even though economies like Greece, Portugal and Ireland are going to go backward, that’s a footnote compared to the world outlook for commodity demand,” he said.
As to whether the upturn in commodities like coal, copper, silver and gold is going to last, Rubin offered a less than rosy projection, drawing upon the central thesis of his book — that oil is the lynchpin of the global economy.
He said with the oil supply flattening and demand increasing, particularly from China, a voracious energy consumer, oil consumption has become “a zero sum game” whereby growth in China comes at the expense of growth in the United States.
Rubin predicted a year to 18 months of buoyant commodities prices before the price of oil, which is “knocking on the door of $200 per barrel,” strangles growth and threatens to trigger another recession. “Every global recession in the last 40 years has had energy’s fingerprints all over it,” he said.
HSBC commodities analyst James Steel said the strength of commodities prices going into 2011 bodes well for miners. “It seems to me that the mining industry is in very strong terms, both from growth prospects and in terms of pricing staying well above marginal costs of production,” said Steel. However, he warned the single-most important impediment to growth is the availability of manpower.
Steel said according to the International Geological Association, mining school graduation rates will rise by just 3%, not enough to fill the 19% increase in job openings the industry is expecting to fill. “It’s a real chasm,” he said.
