London Calling applauds a Hunt for market truths

Conjecturing a global post-mining scenario

UK analyst Simon Hunt may be the only researcher in his field with a true measure of what's currently happening in metal markets.

Then again, he might not.

Hunt has recently re-examined the apparent boom in prices over the last six months, trying to determine what this means for future global metals production and therefore mining prospects.

His conclusions cut right across the majority of current "bullish" sentiments, pointing to artificially boosted demand, and manipulated supply, scenarios.

Could the drove of optimists - now creeping out of the woodwork all over the shop - have got it seriously wrong ?

If so, prudence alone (not to mention ethics) requires a concerted shift to a global post mining" scenario.

And starting now.

Mr Hunt's sombre predictions - pinned mainly, but not exclusively to the fortunes of copper - have already found space on MAC , most recently last July. See: http://www.minesandcommunities.org/article.php?a=9334

Of course, we've given him space in this column, to a large extent because he's "playing our tune". That's to say: a sustainable development ditty, abjuring future wastage, whether of resources, environmental capital or of peoples' lives.

Hunt's key points, summarised last week by Lawrence Williams of Mineweb, are these:

• Present slowed-down consumer spending suggests there's now a major reduction in demand for basic metals like copper. (That seems pretty obvious.)
• Increasing unemployment, and the diminution in person-hours worked, is having an impact on consumer spending that's approaching what precipitated the Great Depression.
• It's going to be "virtually impossible to raise [metal] prices, [thus] the rationale for using cheaper, or more efficient, substitutes is strong ... new technology is enabling manufacturers to reduce quite substantially the amounts of copper used in many key markets."
• Prices are being driven by speculators and others, which is a common occurrence throughout copper's history, only on this occasion the size dwarfs anything seen before. There ... is probably 2.5 million tonnes now being held outside the reporting system ..."

Not counting on China

Don't look for a long-term boost from China, warns Hunt.

The super-state still relies for around 35% of its GDP on exports, 50% of which have been going to the U.S. and Europe. These exports have been falling month on month; the country's announced statistics are at best inconsistent and at worst misleading - particularly in relation to the past year and a half.

Moreover "... to compound Chinese worries there is the beginning of 'reverse globalisation' where currency parity changes are making it less profitable to move manufacture and services to the developing world and a trend is starting to bring this back to the ‘Old World.'"

A considerable proportion of Chinese [copper] consumption is by small enterprises. But "by early this year around 25% of these... had shut down. This led to increases in output from larger plants..."

Don't be fooled that this is "a sign that consumption is increasing." In fact, says Hunt, that's "probably not been the case at all."

Moreover, around 40% of all recent copper Chinese copper cathode imports "are owned by foreigners with the material being stored in warehouses outside the reporting system ... by the end of August that the surplus copper so held was as much as around 1.4-1.5 million tonnes"!

His conclusion:

"[I]t is not real fundamentals which are driving prices but developments in money markets..."

This means that, within the next three years, "the copper price [may collapse] to the $1500/tonne level, with the bottoming out of the markets carrying on until 2017."

Few pundits seem to take the Huntsman seriously.

Perhaps they really do believe economic "recovery" to be just around the corner, since it's always followed down-turns in the past. Just leave it a little longer folks, they counsel us, and all will come rosy in the end.

On the other hand Hunt might just be right: that the world of metals and mining is yet to face its biggest depression of all.

Source: "Could copper fall to $1,500 a tonne by mid-decade?" by Lawrence Williams, Mineweb, 19 October  2009