Demand rebound puts mining investment in focus
Demand and metals has rebounded strongly since the middle of last year, driving prices sharply higher. But mining companies are reluctant to ramp up investment in new projects, which could lead to a supply squeeze.
The financial crisis has had a significant impact on the mining industry, but it's bounced back well. In terms of market capitalization the world's top forty miners finished last year returning to the heights of 2007.
However, despite the recovery the industry is still plagued with uncertainty about the future.
The sovereign debt crisis in Europe has fueled fears that the biggest customer for Russian metals may be about to slip back into recession, with John Campbell, metals and mining leader from PricewaterhouseCoopers saying this is making Russia shift its export focus to Asia.
“Most of the Russian companies have been looking to shift their sales to the export markets, primarily to the European markets. And now that there is uncertainty in the European markets the question will be to what extent they will look to other markets for export and particularly to Asia. There is a number of indications that Russian companies are looking towards not just China but to Korea and Japan as potential export markets for metals and raw materials.”
China is predicted to surpass North America as the industry's largest customer in the "very near" future, and increased demand is also expected from other emerging economies such as India and Brazil. This will make the miners to speed up exploration at some point to keep up with potential future demand, which could become a real challenge for the industry, says Tim Goldsmith, global mining leader from PriceWaterhouseCoopers.
“The challenges around the supply side of the mining world are not so easily solved. And it looks like there will be quite a struggle for the supply side of the mining equation to deliver what's going to be required from the demand aspect. Until the global financial crisis we saw a huge growth in the amount of money being spent in exploration but we actually didn't see a huge growth in the amount of product being found.”
After the global financial crises, mining company's reduced their spending on exploration for nonferrous metals by 42%. And with uncertainty still in the air, this trend is unlikely to change any time soon.