Thoughtful Thursday: From England: it’s the Economy, Stupid.

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Today’s Key Takeaway: “The mining industry should think of itself as being in a presidential election; we need to focus on a simple message. Global GDP is soaring, and the world needs our metals and minerals.”

The View from England: It’s the economy, stupid
Chris Hinde, Mining.Com, January 5, 2022

t is traditional at this time of the year to make resolutions and predictions. In our industry the latter invariably includes the forecasting of metal prices. I am both too old and too ignorant to fall into this particular pontification trap, but we are seemingly surrounded by those able to look into the future.

I know for a fact, however, that metal-price forecasts are, on average, hopelessly wrong. An in-house study of metal-price predictions was conducted some years ago while I was at S&P Global Market Intelligence (SPGMI), and the results were hilarious. SPGMI calculated that, for year after year, the median forecast (of some 50 analysts) invariably approximated to the current price plus an extension of the existing trend. Inflection points were almost always missed.

The best analysts can, no doubt, make reasoned estimates of metals demand and supply, but judging market sentiment and the whim of speculators (and so prices) is still very much an art rather than a science. As an engineer, I worry why those with an apparently almost infallible record of making predictions are telling us about their success on LinkedIn (not unrelated, it seems, to subscriptions in investor newsletters). Shouldn’t they keep their nuggets to themselves and make vast fortunes. Or are they just being generous to us, the less gifted?

I’m not sure if I speak for anyone else but my love affair with raging bulls of gold is long over. You know the type; think of a price, double it, and then give as many interviews as possible. They can be recognized a mile off. When I was the editor of Mining Journal we used to say that the more gold on the person, the less was likely to be in the mineral deposit they were promoting. We need a collective noun for those that hype precious metals; an ‘aullock’ of gold soothsayers springs to mind.

Analysis is easier for metals other than gold. Whilst price predictions remain problematic, there can be no doubt about the burgeoning demand for most metals and the long-term need for mined products. The reason? Three words; the global economy. And what drives global economic growth? The inevitably rising population and increasing per capita wealth and consumption.

Individual aspirations are clear; we all want to be American, do we not? At least in terms of their access to, and ability to acquire, material goods. The good news for the planet is that this is 7.2% lower than the calculation for Americans born in 2020 (and the year-on-year prediction of lifetime coal consumption is down nearly 21%).

The world needs metals and minerals

Although this lifetime consumption in the U.S. is down on the previous year, it remains a heady target for each of the 11.2 billion people likely to be living on our planet by 2100. Notwithstanding recycling, more efficient usage and the development of new materials, the demand will rise for a whole swathe of metals and minerals as the developing nations develop.

This isn’t a vague forecast, it is science. Numerous academic studies have established the close link between metals consumption and the wealth of individuals and nations — although the intensity of metals usage declines at higher levels of per capita gross domestic product (as the wealthy spend proportionally less on goods and more on services). There is an especially close relationship, not surprisingly, between global industrial production and the demand for base metals.

Five years ago, the World Bank published a report (part of the Maddison Project) that calculated global GDP since the time of Christ. Measured in 2011 dollars, global GDP was only $183 billion two millennia ago, and had reached an inflation adjusted $108 trillion in 2015. Indeed, since WWII, real global GDP has doubled every 14-23 years, and the world’s wealth is now growing exponentially.

Almost 30 years ago, James Carville (a policy strategist in Bill Clinton’s successful 1992 presidential campaign) coined the phrase “The economy, stupid” to remind the campaign’s workers of the three messages on which they should focus (the other two being “Change vs more of the same” and “Don’t forget health care”).

The mining industry should think of itself as being in a presidential election; we need to focus on a simple message. Global GDP is soaring, and the world needs our metals and minerals. I can’t predict short-term metal prices but, long term, I know that the mining industry will become even more important, at least it will if we are all to become American.