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G. Chandrashekhar

Mumbai , March 19

The mining industry for industrial metals has not been able to keep pace with the scorching rate of demand growth being witnessed in recent years.

Asian economies, significantly China, have contributed to the current bull run.

No wonder, experts assert that a feature of the bull market in the industrial metals has been the worse than expected performance by the mining industry in expanding output to match the acceleration in demand growth over the past three years.

There is now emerging consensus on expectation that some metal markets will move into surplus this year, mainly copper, lead and tin; while others may stay in deficit (aluminium, nickel, and zinc).

Crucial factor

One factor that is likely to prove crucial in determining the extent to which metals markets remain supply-constrained is the availability of raw materials. So far this year, the price signal being sent out in a number of key sectors is that supply is still tight indeed, according to Barclays Capital Research.

In the zinc sector, competition between smelters for scarce supplies of concentrate is so intense that smelters are paying miners for small spot tonnages at present and zinc concentrate market is likely to stay in deficit this year, severely constraining the potential growth in metal production.

Meanwhile, in the copper sector, there has been a significant reversal in trend towards easier availability of copper concentrates in 2005 and the charges that smelters are able levy on miners have fallen sharply in early 2006.

Tight supply

Finally, alumina, the raw material for aluminium production remains in exceptionally tight supply and spot prices have surged to new highs above $600 a tonne early this year.

Interestingly, common themes across these varied raw material markets are the impact on supply because of strikes by miners seeking bigger share of mining company profits and a number of unforeseen production problems, the result of stresses and strains that are not surprising given that most suppliers have been working flat out for at least two years trying to keep up with demand for their output, Barclays observed.

Neglect of investment in new sources of mine supply as well as plant and equipment over a long period of time is the root cause of recent supply shortfalls.

This is indeed a factor that will take mining and metals industry several years to resolve.

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