If the coming year follows the mining trends of 2013, then the industry is in for a bumpy ride. The final numbers are being crunched from last year’s Dow Jones-UBS Commodity Index and they paint a bleak picture. The 22 commodities that make up the core of the index dropped in value by 9.6% in the last year. This is the third year in a row in which these markets posted a loss. Over at Standard & Poor (S&P), their review of the 24 raw material that make up the GSCI Spot Index posted a 2.2% drop in price value. Although by most measurements that is low, it also represents the fifth straight year of losses.
Consider some of these specific commodity postings:
- Corn dropped 40% in value, despite a record US harvest;
- Gold fell 28% in value;
- Silver lost 36% of its value.
Add it all up and the total loss across the entire commodities markets was close to $88 billion. It didn’t help that investors took out $36.3 billion from these markets. Ironically, the S&P 500 posted its biggest increase since 1997. It was up 29.6% for 2013. As for the Dow Industrial Index, it too is consecutively posting record high numbers.
What does all of this mean for mining companies this year? Not many financial experts are expecting gold to rebound, unless there is some sort of global crisis that could trigger a rush on the market. The same can be said for silver prices, which have remained stagnant throughout all of last year.
In the coming months, all eyes will once again be on China to see how their economic slowdown might impact global supply and demand trends. Down in South America, indications are that there will be an overflow of copper and iron ore commodities.
The same can be said for Australia’s iron ore industry. Look for gains in those sectors by the end of 2014. The supply and demand for raw steel ingredients is probably what contributed to iron ore putting up a strong finish of $134 per ton. That is up from a low of $110 per ton, the rate at the midpoint of 2013.
The nickel market is looking like it might actually up production to 2m tons by 2015. That’s a significant increase from the 1.4m tons that were produced in 2007. Of course, if Indonesia goes through with a ban on ore exports, the entire nickel industry could be upended.
Recent mine closures could help improve the prospects of the zinc, lead and tin industries. The hope is that the demand in developed markets will also be a contributing factor to increase the value in those sectors. Thanks to new vehicle design in certain European markets, there could be significant gains posted for platinum group metals.
It certainly looks positive for Canadian miners, however, the market volatility will change the way companies do business if they want to be profitable. Indications that inflation, volatile commodity prices and decreased productivity (especially with the talent crunch) levels are just some of the challenges mining firms will continue to face in the next year. Waiting out the volatility won’t help, rather pursuing innovation will help both juniors and big companies handle a challenging 2014.