Firstly, the traditional vote of thanks goes to the organisers and sponsors of both conferences – being Mining Asia Indaba (Singapore) and Mining 2012 (Brisbane).
Being closer to both venues than the majority of CRU analysts, your scribe was dobbed in to give the respective talks and to hot-foot between locations.
Thereafter, your scribe enjoyed a return to the calm pleasures of Perth domestic airport, to the full experience of that recently completed eighth wonder of the modern industrial world, being Perth airport’s unique advanced single-lane traffic ”low” system.
To the key messages for the global economy*:
1. Europe. “Not looking too flash” is a newly minted economic term that applies to the eurozone. Two economic outcomes are possible, being either greater closer integration, which for ”creditor” countries, such as Germany, this means sharing responsibility for others countries’ debts – and for “debtor” countries, such as Spain, this entails ceding sovereignty and enduring years of austerity in order to restore competitiveness. The alternative is a break-up of the eurozone – with all the attendant economic uncertainties thereof. Neither outcome offers an easy solution for return to growth and a Japan-like economic flat-line looks about the best economic outcome in the near to mid-term.
2. America. Approaching a fiscal cliff: USA’s government debt and debt positions are worse than those of the eurozone. Government debt is at a level that experience shows reduces economic growth. The mandated cuts in spending and rises in taxes due in January – the “fiscal cliff” – would send the economy into a deep recession, with projections for the economy to shrink 2.9% in the first-half of 2013 if implemented. As such, the probability is that whoever wins the US presidential election a compromise deal will be done (no doubt at the 11th hour, once again).
3. China was widely expected to regain momentum in the second half of the year but so far it has only stabilised. Over the past 12 months a range of supportive measures has been rolled-out – such as fast-tracking infrastructure projects and lowering interest rates. We’ve also seen reformist measures adopted, including widening the RMB’s trading bands and giving banks greater flexibility over their interest rates. China’s slowdown may not feel like good news, especially for the metals industries, but it is. China’s economy has become increasingly unbalanced as growth was overly reliant on exports, investment, industry and profits at the expense of consumption, services and household income. The longer that China continues without rebalancing, the greater the risk that it repeats the experience of either Japan post 1991 or of developing Asia from 1998. Either of these outcomes would be far worse than anything being experienced now. China’s growth model must change. There are encouraging signs that this is happening. Watch out for the further rises of the Chinese consumer.
Now to some mineral commodity outlook one-liners:
1. On Uranium. “Here comes China” is the key message here. Contrary to much press coverage, uranium is a China story not a Japan or Germany story. China is on-track to do for uranium in the future what it did for iron ore in the past; drive prices higher.
2. On Copper. Copper demand again is all about China – but it remains the challenges and inability to maintain consistent supply growth without disruption that will impact prices. Margins will remain strong for miners.
3. On Zinc. The somewhat traditional view that “Zinc stinks” may become “Zinc is king” in the foreseeable future with significant mine closures likely to impact supply and tighten stocks balance by 2015/6. Prices will lift as a result.
4. On Gold. The economic uncertainties above will maintain strong gold prices in 2013. Mark Twain once said: “Everything has its limit – iron ore cannot be educated into gold.” The less often quoted Shania Twain put it well too, however. It is unclear whether Shania had gold on her mind at the time, but her hit song sentiment that “you’re still the one” applies to gold for 2013.
Good Hunting
Allan Trench is a professor at Curtin Graduate School of Business and Research, professor (value and risk) at the Centre for Exploration Targeting, University of Western Australia, a non-executive director of several resource sector companies, and the Perth representative for CRU Strategies, a division of independent metals and mining advisory CRU group (allan.trench@crugroup.com).
*with special thanks to Grant Colquhoun, CRU Group
