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Price predictions
With a shorter time frame, Xstrata plc, BHP Billiton
and Glencore International plc made predictions in
their annual statements for 2011 on the likely
direction of commodity prices.
For its part, Xstrata was very optimistic for metals
markets, and voted with its wallet by investing
US$30 billion in sustaining, or expanding, its
operations and building new mines or metallurgical
facilities.
BHPB’s chief executive, Marius Kloppers, said that,
over the longer term, “we remain positive on the
outlook for the global economy as the drivers of
urbanisation and industrialisation in
China, India and other emerging
economies are expected to
underpin global growth and robust
commodities demand”.
Mr Kloppers added: “Of the
commodities, copper and iron ore
are expected to remain supported by
their compelling supply-demand
fundamentals, while the structural
shift in Chinese demand for
metallurgical coal remains well
entrenched. Geopolitical factors are
once again likely to influence crude-oil
pricing.”
In contrast, BHPB believes the
outlook for aluminium, nickel and
manganese alloy industries remains
“challenging”, which, Mr Kloppers said, has led to a
“significant margin compression for most producers,
almost irrespective of their position on various global
cost curves”.
In its trading statement for the year, Glencore
noted that this year “has started well across all areas
of our business”. The trading group noted “much of
the market weakness experienced towards the end of
the year has reversed, and market volumes remain
healthy”.
Precious demand
Precious metals look particularly robust, and the
global demand for gold rose to over 4,067t, worth
US$205.5 billion, in 2011 – the highest amount in 14
years. This is the first time that global demand has
topped US$200 billion, and the tonnage level is the
highest since 1997.
The increase was driven by record interest from
investors, according to the latest ‘Gold Trends’
report from the World Gold Council (WGC).
Investment demand was up 5%, to almost 1,641t, as
buyers in Europe, China and India looked for safe
assets during a period of economic uncertainty.
China and India are the main cultural consumers of
gold, generating 55% of global jewellery demand and
49% of overall demand, said the WGC. Europe also
witnessed an increase in demand. The continent
posted its seventh consecutive annual gain, to 375t,
with Germany and Switzerland the main drivers of
growth.
China’s jewellery demand increased every quarter
of last year, and was the largest single jewellery
market worldwide for the second half of 2011. WGC
expects demand in China to continue steadily rising.
India remains the largest country for gold demand,
with 933t. Indian demand accounted for a quarter of
total bar and coin demand worldwide, despite the
February 2012
weakness of the Indian rupee
against the US dollar during
the second half of 2011.
On the supply side,
gold-mine production
reached an annual record of
2,810t, 4% up on 2010.
Recycling was down 2%
year-on-year to 1,612t. When average price
rises of 28% are taken into account, this indicates that
near-market supplies are drying up and that
consumers may be holding on to their gold in the
expectation of higher prices.
Marcus Grubb, managing director of WGC’s
investments, said: “What we
can see from these 2011 figures
is that there were two main
factors driving the results:
Asian growth and optimism on
the one hand, and western
desire to protect assets against
uncertainty on the other.”
He added, looking
particularly at Asia, that there
was a major boost to the
overall figures from the
increase in Chinese demand,
which is a trend that will
continue over the current year.
Mr Grubb said: “It is likely that China will emerge as
the largest gold market in the world for the first time
in 2012. What is certain is that the long-term
fundamentals for gold remain strong, with a diverse
and growing demand base, coupled with constrained
supply side activity.”
WGC’s research shows that central banks
continue the trend established in 2010 of being net
buyers of gold. Purchases by central banks soared
from 77.0t to 439.7t. This reflected the need to
diversify assets, reduce reliance on one or
two foreign currencies, rebalance reserves and
ultimately protect national wealth.
Gold support
This enthusiasm is shared by most analysts, and
reports published by Thomson Reuters GFMS, the
CPM Group and PricewaterhouseCoopers all
“Indian demand
accounted for a quarter
of total bar and coin
demand worldwide,
despite the weakness of
the Indian rupee against
the US dollar during the
second half of 2011”
EXPLORATION SPECIAL
indicated that strong gold prices would continue,
possibly breaching US$2,000/oz toward the end of
the year. CPM said that gains would subsequently
slow, with 2012 prices unlikely to be exceeded for
some years.
The updated annual Thomson Reuters GFMS Gold
Survey concluded that gold prices may remain stable
over the first half of 2012, as concerns about the
Eurozone moderate investment. The report forecast
an average price of US$1,640/oz for the six months
to end-June. However, the report argued that raised
expectations for inflation, prevailing low interest
rates, and a reluctance to invest in reserve currencies
may push prices over the US$2,000/oz mark by late
2012 or early 2013.
Philip Klapwijk, head of
metals analytics at GFMS, said
“The re-emergence of US
concerns, in particular any
apparent need to adopt [a
third round of quantitative
easing], could really fire up
the gold market.”
The GFMS results were
supported by responses
to the 2012 Gold Price
Report from PricewaterhouseCoopers
(PwC), which
analysed the views of
producers representing a forecasted 37.75Moz of
gold production for the coming year.
Fully 80% of respondents to the PwC survey
believed that the price would continue to rise, with
over half expecting it to hit US$2,000/oz this year.
Analysts at Credit Suisse AG sounded a more
cautious note, however, saying that while gold may
break records again, prices were unlikely to reach
US$2,000/oz in 2012.
The PwC survey noted the increasing disparity
between gold prices and stocks, comparing an
increase in prices of over 23% with a gain of under 4%
in the S&P/TSX Global Gold Index between January
and November 2011. PwC attributed this disjuncture
to the increasing popularity of electronically-traded
gold funds.
New York-based CPM group released its Gold
Long-Term Outlook report in January, arguing that
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