Those seeking relief from the plunging commodity prices which have dominated headlines in recent weeks are likely to see a change in the second half of 2009 or early 2010, according to Dina Cover, an economist with TD Financial Group.
“Going forward, the outlook is not too bleak,” she says.
“It’s going to take time for the United States economy to recover, but once that starts, we should start to see prices start to come back again. We are going to have supply-side responses, production will slow, and demand will start to pick up and that should drive the market in the other direction.”
A perfect storm of global economic problems has impacted not only Canada’s greatest trading partner but countless other countries around the world, slowing the world’s demand for metals.
What’s more, inventories of commodities like nickel, zinc and aluminum are at high levels, making it likely that the big mining houses will soon impose a slowdown in production, says Cover. New mines due to come online in 2009 may begin at minimum production levels.
The once-proud mining “supercycle” has run aground sooner than most would have suspected; as early as December 2007, some national economists were predicting that, at worst, nickel would have hit $10 a pound in December 2008.
However, after peaking at nearly $25 pound in mid-2007, nickel prices hovered near $15 until May 2008. It has has since slid to $8 a pound since mid-September, and has since declined further to $5 a pound.
This rapid drop has threatened or shuttered any number of projects in recent weeks, including First Nickel’s operations in Sudbury, where FNX Mining’s Levack Mine was also put under care and maintenance. Development has also halted on Ursa Major Minerals’ proposed Shakespeare project. In the northwest, North American Palladium’s Lac des Iles Mine was also put on hold.
Despite the lost jobs and requisite belt-tightening that has already begun to take place across the Northern Ontario economy, long-term concerns should be minimal, says Jean-Charles Cachon, a commerce professor with Laurentian University.
While demand is indeed slowing in places like China, Cachon points to a recent announcement by the Chinese government that its growth will still reach eight or nine per cent in 2009, rather than the standard 10 per cent.
“The panic is a bit ridiculous,” he says. “The fundamentals that drive the demand for metals are still the same. You still have countries like India and China that are putting cars on the road every day, though this is slowing down a little.”
While some gloom hangs over the future of nickel, other base metals which play a part in the regional economy may actually fare quite a bit better than they have in recent times, says Cover.
Copper prices have halved across 2008, having spent much of the last year sitting between $3 and $4 a pound, only to slip to under $2 in mid-October.
However, Cover sees copper as one of the better performers in the coming years, due in part to the fact it has much smaller surpluses than other prominent base metals.
Gold, on the other hand, has seen more stability than most. Starting the year at $850US per ounce and peaking at over $1,000 in mid-March, prices have since moderated somewhat to prices seen at the beginning of the year, bouncing between $700 and $900.
In fact, several gold projects slated for a 2009 production start date are still moving ahead, including various Timmins-area efforts underway by Lake Shore Gold and Apollo Gold. Goldcorp Canada has even announced plans to create new open-pit mines on the old Hollinger properties in downtown Timmins.
This precious metal has avoided a drastic price drop as it is largely seen as a safe haven during rough economic times, says Cover. Prices have still come down due to the widespread nature of the economic crisis, lowering investment and reducing the need to use gold as a hedge against inflation.
