The overall view for the global mining industry in the coming years is “moderately positive”, owing to the ongoing fiscal spending on construction, mostly driven by China, BMI Research mining and metals commodities analyst Mitchell Hugers said during a teleconference earlier this month.

“Chinese fiscal spending is going to stay strong to the end of 2017, and provide resilient support for metal prices over the coming years,” he noted.

Hugers added that Chinese demand for commodities would continue to drive prices higher, as the country accounts for more than 50% of both production and consumption for the majority of metals covered by BMI Research.

He highlighted that the company’s scenario shows price variations in both the short and long term. “In 2017, both iron-ore and steel prices will remain resilient, following strong gains in 2016.”

Hugers asserted that, in the long term, from 2018 to 2020, BMI Research expected “an eventual waning of Chinese fiscal spending”, which was likely to result in falling prices for those commodities that were in high demand in the construction sector.

“This would be both iron-ore and steel prices, which will underperform those of lead, zinc and tin, [whose] prices . . . will be more focused on the gradual recovery boom and [market] fundamentals rather than the construction sector.”

Hugers highlighted that US President-elect Donald Trump’s electoral victory was a key risk to BMI Research’s scenarios, particularly as Trump’s fiscal spending and policy implementation and policy changes were yet to be determined.

“Despite this, we do not believe the Trump Presidency will drastically impact on global supply and demand fundamentals, which will be a key driver of prices over the coming years.

“The US, combined with other developed markets, such as the UK, account for about 10% of global steel consumption, whereas China accounts for over 50% of global steel and copper consumption,” he explained.

Meanwhile, Hugers pointed out that, while commodity prices could expect moderate improvement in the future, capital expenditure (capex) in new mines was likely to decline over the next three years, “as mining companies will continue to pursue a strategy of greater capital and supply discipline”.

He explained that, before the commodity price crash in 2012, a significant amount of capex was tied into the development of projects, resulting in mining companies “focusing on a strategy of retrenchments and cancellations, as well as divestments of high-cost assets to balance the books and improve operational margins”.

However, he said companies that continued to pursue this strategy would receive limited gains going forward.

Companies that focused on maximising the benefits of existing capital and increasing operational improvements would be the most effective, which amounted to “streamlining mine processes through [the elimination of] overlap and an increased focus on cost reduction,” Hugers said.

In addition, he pointed out that improved operational efficiency drives would promote innovation in the mining industry.

Hugers noted that brownfield projects would continue to be a key trend, with mining companies continuing to focus on sustaining capex rather than increasing capex. He added that mining companies would also “continue to focus on increasing marginal outputs rather than focusing on new greenfield developments”.

He expected the sustaining capex trend to result in increased sales of mining capital equipment rather than mine infrastructure inputs, “as the former will be more crucial to extracting efficiency gains, while infrastructure spending is more closely tied to greenfield mine development”.

In addition, BMI Research expects capex cuts to be greatest for commodities, which will see prices at or below production costs. “We believe that both coal and iron-ore capex will receive greater cuts, as these prices will see a less sustained recovery than that of other metals,” Hugers said.

He added that, despite the price of iron-ore rallying by almost 50% this year, prices were expected to average about $60/t by year-end, significantly lower than the 2011 high of $130/t.