Ernst & Young: Demand outlook strong for mining

By Rob Starr, Content Manager, Big4.com

Cost competitiveness and project execution will remain the focus for global mining and metals companies going into 2013, in stark contrast to 12 months ago when fast-tracking production was still top of the agenda.Ernst & Young’s Global Mining & Metals Leader, Mike Elliott, says the fundamental demand outlook for the sector remains strong and with the policy-induced soft landing in China, the picture coming into 2013 is brighter.

Elliott says in addition to cost competitiveness and project execution, key focus areas for miners globally in 2013 will be recycling capital for growth, managing local community stakeholder relationships, and balancing capital restraints with Foreign Direct Investment (FDI) obligations.

“The fundamental demand story for mining and metals remains strong and we are already seeing an increase in growth in the Chinese economy, with expectations that this will be maintained in 2013,” says Elliott.“While we remain confident in the outlook for demand, we are more concerned about how the current hiatus in new capital approvals will impact future supply.”

The priority for miners 12 months ago was to maximize production to capitalize on premium prices. The speed with which commodity prices softened off the back of reduced growth in demand from China and Eurozone uncertainty fuelled investor caution. This has lowered shareholders’ appetite for risk, creating a very different environment for miners to navigate coming into 2013.

With less capital being committed, miners needing capital for growth will be focused on recycling existing capital by divesting non-core or underperforming assets to free up capital for investment.