Into The Next Millennium: The Long Bull Market In Metals And Minerals

In the post war years metals analysts and statisticians have generally tracked the demand for metals in line with changes in OECD industrial production (IP) growth rates because, undoubtedly, the correlation between IP growth and metal demand was reasonable. However the correlation was exaggerated. During times of expanding IP growth metal demand increased at a faster proportional rate than IP growth. This was probably due to industry restocking in anticipation of growing demand at the start of each economic cycle. Conversely, metal demand would slacken at a greater rate than would be suggested by negative IP growth as industry destocked in order to reduce costs. Nonetheless, overall, a reasonable correlation between IP growth, over the longer term, and metal demand could be painted. Yet, although this correlation has stood well since the last world war it has been based on the fact that the bulk of the world's IP growth stemmed from the industrialized countries of the western world, latterly including Japan. The so called "developing world" was of little consequence, whilst countries of the Soviet Union and Communist Bloc were deemed to be closed, self-contained entities which, for each metal, would either be net exporters or importers. These quantities would be used by analysts to calculate the overall supply/demand equation for the western world only and to deduce whether a commodity was in shortage or surplus. It is now believed that this method of projecting total world supply and demand for raw materials is outdated and takes little account of the worldwide political changes which have occurred since the collapse of communism and the revitalization of China, albeit under a notional communist government. It is no longer appropriate to assess global balances for raw materials on the basis of three economic blocs namely, western world, developing world and communist bloc. Rather, global balances need to be projected on a global basis. In this regard, since the collapse of communism and the removal of many other totalitarian regimes, capitalist forces are at work and are attempting to satisfy, with some considerable success, the expectations of the great mass of the world's poorer people. Such people, usually located in Asia, Africa and Latin America have aspired to the same standard of living as people living in western Europe, North America and Japan. Now, with free market forces at work their aspirations will start to be met. Consequently, the demand for metals and other raw materials will now rise at a much faster rate than at any other time in the world's history. Not only will the production of raw materials have to keep pace with rising IP in the developed world but will also have to keep pace with the demands associated with the rising expectations of rapidly increasing populations in the developing world, as well as from within the old communist bloc countries. This paper sets out to argue the case that metal demand could well increase at a rate faster than the world's mining companies, governments and financiers can deliver.