Mining companies investing intelligently now will be rewarded

Despite weak short term demand and tough global economic conditions, long term supply constraints remain, which will lead eventually to higher commodity prices and significant rewards to companies that invest today, according to Deloitte and Industrial Info Resources.

This supply constraint danger "will grow as companies halt production in the face of capital cost increases and growing shareholder demands for more immediate returns," says Deloitte CEO Glenn Ives.

The mining boom that had lasted nearly 15 years ended when giants BHP Billiton (NYSE:BHP) and Rio Tinto plc (NYSE:RIO) began cutting back production and capital spending at the end of 2012.

Capital expenditures continue to drop in 2013 and construction starts "are expected to decline in 2013, leading to a reduction in actual spending for 2014."

In this unfriendly atmosphere, maintaining an eye on the medium and long run is crucial as the well documented urbanization of developing nations is set to continue, says Ives.

This urbanization will not only continue in the now famous BRIC nations but new waves of countries like the so-called TIMPs (Turkey, Indonesia, Mexico, Philippines) will stoke global commodity demand going forward.

To read Deloitte's Tracking the Trends 2013 in full, click here.

 

Sources: Deloitte; Reuters; Industrial Info Resources