India, Africa could be new global demand base consumers as China wanes – Baxter
ROGER BAXTER Miners need to shift focus towards reducing costs, being more innovative and doing things better
Photo by Duane Daws
Following China’s economic slowdown, and its subsequent decreased demand for minerals, a new global demand base consumer is required to spur growth in the mining industry, with India and Africa boasting significant potential, according to Chamber of Mines (CoM) CEO Roger Baxter.
He addressed mining industry role-players at the Mining and Metals Industry Forum at global advisory firm EY’s local headquarters in Sandton on July 15.
Baxter pointed to the “storm clouds” currently hanging over the mining industry, illustrated locally by the 59 000 jobs lost in the past three years (mostly in the gold and platinum sectors). He added that, in 2015, the mining industry recorded an aggregate loss of R37-billion, which he said was significant, considering the industry recorded a R10-billion loss in 2014.
“Mining is the only sector in South Africa’s economy that is lossmaking. The industry is in a space where it has to cut costs, and this is why wage negotiations are so critical.”
Baxter highlighted that several factors impacting on the mining industry were also still impacting on growth rates and productivity. He said that, in 2015, global commodity prices slumped 25%, coupled with a 37% decline in market valuations of the top 20 mining companies, an average return on investment of 4%, significant cutbacks in exploration activities and capital projects, as well as mining companies trying to reduce high-cost production.
He noted that more than a third of all capital spent by the mining sector in the last five years had been impaired as companies battled an oversupply of commodities.
A “massive slowdown is taking place”, said Baxter, adding, however, that the mining industry was still growing at a rate of 7% yearly.
He cited the shifting of South Africa’s economy from growth as a fixed-investment supply side model to a consumption-led model as another mining industry constraint. This, said Baxter, meant that South Africa was going to reduce its demand profile for minerals, thereby reducing its growth rate in terms of demand for minerals.
Prior to its economic slowdown, China accounted for 40% of global demand for minerals, he pointed out, adding that iron-ore demand from China in particular required 70% of global production. “There is not another country currently which stands out that can take China’s place in terms of such a significant demand for minerals.”
In contrast, Baxter said India’s economy grew by 7.8% in 2015 and, provided it kept growing at that rate, it would bring on stream significant demand for global minerals. “In the next five to ten years, India will be providing that big demand base.”
However, he said the biggest challenge was that India did not yet provide the required momentum in demand for minerals to spur widespread mining industry growth and any significant upswing.
Baxter said it was also required of Africa to “start playing its role”, because, in the next 35 years, Africa’s population was expected to total two-billion people. “Nine hundred-million of those will have urbanised, thereby requiring a lot of materials to develop and expand cities. Mark my words – Africa will play a key role in demand for minerals in the longer term.”
To overcome current obstacles, he said, mining companies’ focus should shift to reducing costs, being more innovative and “trying to do things better”. Innovation, he said, was not just about research and development– it was about fixing processes and being a lot better at the core function of a business. “Innovation is a key driver of the times,” concluded Baxter.
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