Growth in demand will prevent crash in mineral prices, World Bank says

Section:

By David Uren
The Australian, Sydney
Sunday, November 20, 2006

http://www.theaustralian.news.com.au/story/0,20867,20786046-643,00.html

Surpluses in mineral supply will emerge in 2008, but continued growth in demand and rising mining costs will stop prices from dropping back to their level of the 1990s, according to the World Bank.

The bank says long-term demand growth will remain strong, while the industry faces challenges in raising its supply.

"However, it would be foolish to underestimate the impact of price signals, the power of markets, and the versatility of the mining industry to address the challenges that it faces," the bank said.

Resource industry leaders in Melbourne for the G20 summit said there had been a lack of investment in capacity in the industry, with a decline in levels of both skills and research and development.

They also conceded that the growth in Asian demand had not been anticipated.

"The industry has been responding to these changes and is making massive investments, but the lead times are typically up to 10 years," a statement prepared by the newly formed energy and Minerals Business Council said.

Last week the Government's commodities forecaster, the Australian Bureau of Agricultural and Resource Economics, said mining developments in Australia had notched another record, with $35 billion in major projects under way.

The number of minerals and energy projects under construction or committed to, has also hit a record 94.

The World Bank said demand for copper could rise by 60 per cent or more over the next 15 years and require the discovery of new reserves to replace depleting mines.

In a review prepared for the G20, it says that although demand growth from China will eventually slow, there is large potential demand from other developing countries.

The World Bank says world reserves of mineral resources should not become exhausted in the foreseeable future.

Although the known reserves of copper would last for only 32 years if demand growth continues at the 3 per cent annual rate of the past 15 years, the bank says, companies do not have an incentive to incur the costs to prove up more than 20 years of future reserves.

The bank says, however, that the long-term decline in ore grades may continue.

There is also a concern that for some metals, including copper, new mines will be smaller and underground, so economies of scale will be harder to obtain.

In the case of nickel, the easily processed sulphide ores are being mined out, and production is shifting to more expensive laterite deposits.

In other minerals, the new ore bodies are likely to be increasingly remote and require substantial infrastructure investment, the bank says. In the short-term, mines are facing higher costs from energy and shortages of skills and supplies.

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