Robust commodity demand expected, driven by China, India and other emerging economies
A private equity mining investor with an 80% stake in a Zambian copper mine, Australia’s EMR Capital, is betting on demand from emerging economies as the main factor that will drive commodity markets over the long term.
EMR Capital’s Executive Chairman, Owen Hegarty, recently told the Paydirt Africa Down Under conference in Perth, Australia, that China and India will remain the key drivers of global commodity demand, supported by demand for manufacturing in other fast-growing economies.
One of the reasons he based his positive future view on is the current dismal level of mining investment. “Investment in the sector remains at trough levels,” said Hegarty adding that future supply constraints will parallel the more than halving in minerals exploration spend, particularly for the global non-ferrous exploration budget.
“By any examination, however, the global economy is expected to double by 2050 and this will be led by the emerging seven top economics – China, India, Brazil, Mexico, Russia, Indonesia, and Turkey,” he said.
Although cautious about the impact on commodities of the current trade war, he commented “You have to look at China – a country rebalancing, reforming and transforming – and that will make it the key driver of minerals commodity demand.”
He cited China’s growing Belt and Road initiative – designed to improve infrastructure and connectivity between China and the rest of Eurasia – as one factor driving new resources demand for construction and technology material.
“But it is not just China. India will derive 25% of its GDP from manufacturing by 2022 and its Smart Cities Mission has committed US$3 trillion to infrastructure spending to 2035,” Hegarty said.
“This alone will create another wave of minerals commodities demand.Indonesia is another force to contend with – its stable economy and focus on infrastructure is generating a solid platform for growth and with that, demand for raw and processed minerals.”
“The demand for copper has been robust for decades and there are emerging new uses but the existing supply is already stretched and there are limited new supply options,” he said.
The opposite side of the coin, remains the unprecedented low levels of capital investment in mining. “Capex investment in resources projects slumped to negligible levels last year compared to the highs of 2011 and 2012 with global exploration spend following the same downward trajectory.”
EMR Capital manages more than US$5 billion across 10 resources investments in seven countries. Their pick of commodities include copper, gold, potash and coking coal.