African Mining and Metals Growth in 2009 Will Wait on Global Upturn

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Researched by Industrial Info Resources (Sugar Land, Texas)--Funding for project development has become a rare resource in the aftermath of the credit crunch. Combined with a dramatic fall in prices for base metals and mineral commodities, this makes the outlook for Africa in 2009 just as problematical as it is for miners in Latin America or Australia. One marginal advantage that many countries on the continent have had in the current turmoil is that their banks were not directly exposed to the subprime market and other risky financial products. Some larger companies are able to finance new projects from internally sourced funds.

There has been enough negative news around for a long enough time to indicate that metal prices have a good deal of the effects of the financial tsunami already discounted at current levels. But with a new round of negotiations between producers and buyers due to start soon, in a depressed market, it might take until January to get a clearer fix on the up and down trends to forecast the probabilities in 2009. Iron ore, coal and steel prices and volumes will be key indicators.

There is no doubt that international majors and sovereign funds are watching for the bottom of the mining and metals markets with intense focus. China and India will make every attempt to continue their policies of acquiring resources in Africa at prices that have now lost the heat of the commodities boom. The pressures of infrastructure and industrial development in the BRIC states (Brazil, Russia, India and China), coupled with consumer expectancy in the domestic markets of those countries, could see the beginnings of a return to growth by the end of 2009.

Shaken by the credit-crunch shock to the system, the resulting stalled projects and production cutbacks could reverse toward positive engagement in the last quarter of 2009 with project managers already having identified equipment and earmarked personnel as they waited for the go and buy signals. A more negative, but equally viable, view is that the combination of lower demand and stockpiling will take longer to work out of the system and see more mine closures and metals production cutbacks over a longer period. In the downward scenario, a further complication could be the addition of new start-up projects, which are already committed, adding extra production to the stockpile.

Armed conflict and social unrest continue to plague mineral-rich areas such as the eastern region of the Democratic Republic of Congo where a war situation is now growing after a temporary lull. Although the forces behind this and other conflicts seem to be local, factional or tribal disputes on the surface, the money to finance the arms comes from local and foreign interests seeking control of the resources in the ground.

The management of the economic structure of a number of countries has improved the climate for investment but this, in some countries and by no means all, is at the expense of establishing and institutionalizing graft and corruption. The solution of the political impasse in Zimbabwe and the re-engagement of its able population would take a major kink out of development prospects in southern and central Africa and see a welter of new mining, industrial and infrastructure refurbishment projects start in the country.

Local mining regulations will continue to loom larger with governments' intents to implement tax procedures on non-national companies and grant licenses and agreements with detailed legal oversight. Environmental impact assessments will be more stringently enforced in Africa, as in other regions of the world, as the working population becomes aware of their governments' duties to protect them from the health threats of toxic waste and pollution. Companies will need to build all these elements into their feasibility studies, just as they do elsewhere in the world.

The International Monetary Fund has forecast that Africa's 2009 growth rate could be higher than 6%. This may be optimistic, as the report takes in a range of economies from Angola still riding in double figures on the back of hydrocarbons to the industrialized South Africa down to over 3%. A longer depression could close the range and cause some fragile economies to drop into negative territory, joining Zimbabwe.

South Africa has the most developed economy and the largest mining and metals industry on the continent and could be affected by the global credit woes worse than less sophisticated economies. South Africa's mining industry is feeling the twin crunch of tight finance and falling product prices. It also labors under the threat of power shortages and forced cuts in power levels in mining operations. The commodities and metals boom created a range of project proposals, many of which are being reappraised, as the cash would not flow in enough volume at present margins to sustain the projects. Financial and banking systems are solid and relatively "toxic investment" free. As a trading nation, the bashing that South Africa's rand currency has taken may provide a lifeline for exporters. Inflation was expected to ease in 2009, but if the weakness of the rand is sustained, this turnaround could be pushed back into 2010.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.