Mining Indaba: Global Financial Crisis is 'More Behind Us,' Commodity Price Outlook Bullish

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Global demand for iron ore is expected to reach 2.6 billion tons in the next seven years and China will remain the largest consumer of the iron ore feed for steel making. Speaking at this week's Mining Indaba in Cape Town, South Africa, Diedrik Tas of McKinsey & Company also said that prices would remain high, but that this would be due to rising operational costs, not increased demand.

Iron ore prices are closely linked to growth in the steel markets. Over the past year, prices have wavered as the slowdown in China's growth led to lower demand for steel.

"In Europe, steel makers were also suffering from a margin squeeze as a result of the higher prices," Tas said. "Cost inflation will drive prices. There's strong growth in iron ore expected in 2020. Thereafter, it is expected to slow down."

Current global supply is about 1.8 billion tons from an installed capacity of 2.2 billion tons. Installed capacity is expected to increase to 2.8 billion tons, with 810 million tons of that capacity rehired, Tas said.

Over the past year, iron ore prices have halved since trading around record levels of more than $200 a ton at the peak of the resources super cycle of the past decade. For marginal iron-ore producers, however, profit margins will be constrained as a result of rising mine inflation.

Also speaking at the Mining Indaba, Rick Daverell, head of commodities research at Credit Suisse, said that since 2008 the rolling financial crisis has taken its toll on global growth expectations. "What we know is that we have gone back to the 2006 level."

Daverell was bullish about the outlook for commodity prices. "The acute phase of the global financial crisis is more behind us," he said. Referring to the negative data coming out of the eurozone and the U.S., he said that the key thing was that nothing has happened over the past nine months.

Bulk commodities were expected to get support from a recovery in the U.S. construction sector and from China's infrastructure drive, Daverell said. He added that China had done what it generally does best, which is to pump capital into its infrastructure spend.

The 19th annual Mining Indaba has 7,500 delegates from the world's mining houses and officials from mining jurisdictions.

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