CANADIAN MINING PERSPECTIVES: Rio Tinto predicts another strong year

The U.S. economy has certainly suffered setbacks, as the sub-prime mortgage problem continues to be felt around the...
The U.S. economy has certainly suffered setbacks, as the sub-prime mortgage problem continues to be felt around the world. I've read reports that consumer spending for luxury items (notably laser eye surgery) is falling in the United States, and that may be only the tip of an iceberg that sinks American economic policy.

Undeterred, RIO TINTO's chief economist Vivek Tulpul is predicting a fifth straight year of strength for the global minerals industry. He believes the fundamentals in most resource markets are not much affected by the U.S. problem.

Some of his reasoning follows:

- Growth of the global GDP will be firm this year, with China and other developing countries leading the way.
- Chinese growth will be about 10%, more than enough to offset any slowdown in U.S. demand
- Slower growth is expected in the OECD countries.
- Underlying commodity demand will remain strong.
- Tight supply, rising development costs and long lead times to new production will all help support robust prices for a number of commodities.
- Production interruptions such as those caused by power losses in Africa and China will further tighten supply of several metals, including aluminum and copper.

Tulpul's report includes case studies for aluminum, copper, iron ore, molybdenum and thermal coal. I was unable to find the document on Rio Tinto's website at press time, but perhaps it will be available there shortly.

There have been several reports from analysts lately intimating that the outlook for the mineral industry is rosy again this year. I passed along two of them, from ERNST & YOUNG on Feb. 17 and from GOWLINGS on Feb 10, to CMJ readers. And now that Rio Tinto has joined the chorus, the good news must be true.

Personally, the fact that everyone is singing the same tune makes me listen harder for a wrong note. My inner pessimist thinks that continued strong prices might be too much to hope for. So I am waiting for any sign of bad news. I think we are already seeing some of it in the skyrocketing labour and development costs. High commodity prices are fine, but when production costs catch up to them, no one will be making a profit.


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