In many ways, the Metals & Mining industry has been at the very epicenter of global economic movements over the last several years, in a much more direct and visible fashion then before. By virtue of core supply and demand issues as well as its resultant impact on the economics of many critical end user industries, the sector has played at the forefront of the Great Recession.

Metal prices and the fortunes of mining companies have risen a long way from the February 2009 lows, mainly driven by Chinese consumption. Prices have also risen in US Dollar terms because of the weakness of the Dollar and the corresponding strength of producer currencies, chiefly Australian Dollar, South African Rand, Brazilian Real and the Chilean Peso in which mining companies incur most of their costs. Input costs linked to prices, like wages and power costs, also rose to partially offset the positive impact of rising prices. The companies restructured their operations heavily to divest non-core assets and to improve balance sheet strength. These measures helped to restrict losses and then expand margins as prices recovered through 2009.

Currently, the industry is bullish on iron ore and copper and to a lesser extent, zinc and platinum group metals.

• ore is particularly robust, driven by booming steel production in China, where the domestic supply is of low grade ore extracted from mines at the highest end of the cost curve.
• While Copper prices will stay high due to supply side bottlenecks (no new capacity until 2013), existing mines are becoming progressively more expensive to operate because of mine exhaustion and higher input costs.
• Zinc has witnessed production changes that that have now brought prices back above the average operating cost. The recovery in auto production has increased the demand for zinc for galvanizing steel and platinum group metals for their use in the sector.
• Aluminum prices will continue to stay bearish, because of huge idle capacities in China and elsewhere that threaten any sustained price recovery.

At The Smart Cube, our work in this sector runs the gamut from Strategy insights through to deep Operations analyses, supporting our clients with making critical business decisions across the board. Whether it is forecasting, modeling, market and industry analytics, demand or supply side studies, our in-depth expertise and knowledge of this sector enables our clients to plan and execute their strategies with greater confidence. To learn more about our offerings in Metals & Mining space, please contact us.