It’s part of Pierre Gratton’s job to be bullish about metals. The industry veteran believes the doomsayers lack historical perspective. Yes, he admits, commodities are facing a downturn – but it’s a lot less black-and-white than simple supply and demand.Jonathan Hayward/The Globe and Mail
Pierre Gratton gets irritated when hear others tell him the global commodities supercycle has ended.
That's not especially surprising: After all, as president of the Mining Association of Canada (MAC), it's part of Mr. Gratton's job to be bullish about metals.
But the industry veteran also believes the doomsayers lack historical perspective. Yes, he admits, commodities are facing a downturn – but it's a lot less black-and-white than simple supply and demand.
"Having been in this business now for 13 years, there is a very significant difference between the mood in this downturn and the kind of attitude and the kind of mood that I used to see in 2000 and 2001," Mr. Gratton said in an interview.
"It's just a whole different kind of feeling. Back then, times were tough and there was no sense it was going to get better, whereas now, times are tough, but we know it's going to get better, so it's a different mentality."
Global commodity prices staggered in recent months, battered by fears that a strong global economic recovery could be more elusive than initially thought. Losses were especially heavy last week, as prices were hurt by news that the euro zone was back in recession, and fears grew that the United States economy might not be far behind if a combination of spending cuts and scheduled tax hikes are allowed to go forward.
The S&P/TSX materials index, which is dominated by mining firms, has fallen nearly 9 per cent so far this month, and large players such as Barrick Gold Corp., Silver Wheaton Corp. and Centerra Gold Inc. are down even more than that.
Members of MAC – including some of the world's largest miners that participate on its board – say current headwinds in the global economy have put a pause rather than an end to the so-called supercycle, the phenomenon that drove demand for many non-renewable resources to record levels, in large part because of demand from China.
As prices have fallen, in part due to concerns that China's giant economy was paring back its growth, major Canadian companies have responded by cutting billions of dollars in spending plans. Just last month, Vancouver's Teck Resources Ltd. announced a one-year hold on some $1.5-billion in planned capital spending as it gauges future demand for the metals it produces.
"We saw this in 2008 as well," Mr. Gratton said during a visit to Toronto, the global capital of mining finance. "We saw metallurgical coal fall from record heights to $130 a tonne, and copper plummeted from record heights to $1.30 a pound, and everybody pulled back wondering, well, when was this going to stop? And then it did stop, and within a few months copper was back at over $2 a pound and metallurgical coal bounced back pretty quickly ... and the good times returned."
If copper prices are any indicator, perhaps miners' optimism is well placed.
Sometimes called Dr. Copper for its ability to predict the direction of the global economy, the metal is trading at around $3.46 a pound these days, well off record highs of $4.50 a pound in early 2011, but still nearly six times where it traded in 2003, when inventories were peaking.
Spot gold was down 1 per cent last week, its fifth weekly drop since a rally in September. Prices for copper slipped on the same worries.
But this time around, Mr. Gratton is confident things will be different. He says his members, mining companies that depend in part on Asian economic growth to drive their own fortunes, are confident China is far from done, with growth plans that have seen it build entire cities from scratch. The potential for massive new demand in India is also encouraging, at least in the longer term.
"That's why the industry remains bullish," Mr. Gratton said.