EDITORIAL PAGE — Metals demand in the next century

Before the discovery of the Voisey’s Bay deposit in Labrador, nickel was not a common exploration target of junior companies. Now it appears to be one of the most sought-after metals in the world, with a host of companies scouring the globe for “Voisey’s Bay II.”

One reason for this renewed interest is favorable market conditions for nickel. Another is the growing perception that geologists have been too focused on gold and copper deposits . . . and perhaps too successful in finding these deposits in just about every corner of the globe.

Copper is a case in point. Prices are sagging now that the true state of stocks has been unmasked by the Sumitomo trading scandal. While demand for the red metal is expected to remain at healthy levels, almost every analyst is predicting prices will face some downward pressure as new mega mines come on-stream during the next decade, in Chile and elsewhere.

Zinc, meanwhile, has yet to sustain a price rally over 50 cents per lb., even though its crustal abundance is less than copper. Good zinc deposits — those not metallurgically complex or set in remote areas — are not easy to find, and this may bode well for prices in the years ahead.

The outlook for precious metals is a mixed bag. On the one hand, demand appears to be strong and prices remain at levels that allow most operations to produce at a profit. But producer forward-selling and bank disinvestment have put a damper on prices, which remain in the doldrums. Last time we looked, gold bulls of the type that predicted prices close to US$1,000 per oz. had long gone into hiding.

Lead may have enjoyed a brief rally, but lead is lead, which leaves nickel as one of the most sought-after metals of the day. While prices are not what some companies hoped they would be by now, the outlook remains bullish because of the steady growth in stainless steel demand. Western producers have also benefited from the inability of the Russian operations to adapt to new economic realities. The market structure itself is advantageous, as the number of producers is limited. This translates into fewer exploration dollars chasing new deposits, which explains the lively bidding war for Voisey’s Bay.

When metal prices are strong, as they were for copper during the past few years, companies spend more to explore for new deposits. A high success rate means a host of new mines which, in turn, can drive down the prices of the metals they produce. Exploration then drops off, fewer mines are found and prices start to rise. The cycle starts all over again. Fortunately, each metal has its own cycle.

What is different about this decade is the entrance of a large number of developing nations hoping to kickstart their economies by reviving their mining sector. Armed with capital and the best available technology to find and mine mineral deposits, North American and Australian mining interests are answering the call, which means a substantial number of new mineral deposits will be coming on-stream five to 10 years down the road. How will this expanding minerals supply affect international mineral markets? Looking ahead into the next century, it is not hard to see that the ultimate health of the worldwide metals sector will depend on how well some of the poorer nations encourage their private sectors to develop secondary industries that will consume metals to produce needed infrastructure, machinery and other industrial and consumer goods. As these countries grow and prosper, so too will demand for most metals and their value-added products.