According to Mr Thys Terblanche head of mining and metals at Standard Bank, no short term pickup in demand is in sight for the global metal industry, but supply side reductions and the long term of development of the BRIC nations could bolster the industry in the long run.
Mr Terblanche while speaking at Mining and Money 2008 Congress held in London said that the world had changed considerably in the last year and that in the current investment environment things were likely to get worse.
He said that "Commodities prices have fallen off the cliff and there has been a total destruction of confidence. Fingers have been pointed to hedge fund activity and there"s no doubt that confidence has fallen off there as well. The level of desperation and focus on survival is evident all around."
He added that the industry had seen prices totally disconnect from underlying fundamentals and that supply and demand issues did not matter in the current environment. He added, however, that resource supply issues which bolstered the market last year remained relevant to the industry, although employee, raw materials and resource factors which had limited the development of projects six to nine months ago, had been overtaken by difficulties in securing finance.
Mr Terblanche said that "Shortages of steel, difficulties finding employees and other such factors had put the squeeze on supply a year ago, now it"s about the lack of supply of finance."
According to Mr Terblanche, the rapid and extreme slump in the size and profitability of mining companies is a clear sign of the severity of the current global economic situation. Mr Terblanche said that "Demand is going to drop but then so will supply a number of projects are being forced to close down and more will follow. The BRIC countries still have a key part to play and we believe that debt will follow equity back into the market. The question is when."