The metals and mining “supercycle” is slowing but is not over, finds a new report released by National Australia Bank.
Written by The Economist Intelligence Unit, entitled: "In the Pits? Mining and Metals Firms and the Slowing of the Supercycle," report notes that the continued demand from China, ongoing global urbanisation and structural changes will support commodity prices in the medium term.
China accounts for a significant portion of total end demand across a range of key commodities.
Between 2003 and 2012, its share of world demand for nickel increased four-fold, its share of copper demand doubled, and the increase in its share in most other commodities was not much lower.
This surge was unprecedented and is likely to remain so — many in the industry emphasise that there will “never be another China”.
The report also identifies cost-control as vital to guarantee longevity and health of the sector.
While counter-cyclical capital expenditure and a focus on “pit-to-port” innovation will help prepare firms for the next upsurge in demand.
In terms of M&A, the report found that the era of larger mining deals is slowing. Further consolidation can be expected, however, amongst mid-cap firms and this will drive a more subdued M&A market.
“Companies in the resources sector are entering a new era, with a renewed emphasis needed on cost control, risk management and working capital efficiency," comments Brad Calleja, Global Head of Natural Resources at NAB.