The mining industry will need to invest more than $150-billion to meet the medium and long-term need for supply, with the need for investment in commodities such as zinc, lead and nickel becoming desperate in the next few years, a presentation by commercial intelligence firm Wood Mackenzie suggested.

In a presentation prepared for the London Metal Exchange Week, in London, Woodmac vice chairperson of metals and mining research Julian Kettle noted that across base metals, iron-ore and steel, Chinese consumption growth rates were set to fall dramatically in the next five years, compared with the precious half decade.

However, we caution against this being interpreted as a bleak outlook – Chinese consumption hasn’t hit a great wall. The scale effect, the sheer volume, still translates into significant incremental demand and good growth in tonnage terms. China will account for between 58% to 69% of global total demand growth for base metals over the next decade, he stated.

Kettle noted that there was, however, little appetite to invest, with prices cutting into the cost curve, low free cash-flow, surpluses building, difficulty in financing and shareholders demanding dividends.

Although producers had responded to sustained lower prices since 2011 with some production curtainment, Woodmac’s analysis revealed that across base metals, further cuts in production were needed to ensure production was economic at current prices.

In Nickel, woodmac advised that 55% of the industry was loss making on a cash basis at current price levels, but there appeared to be little appetite to cut with just 30 000 t of production cutbacks so far. Kettle said that the market was focusing on the slow pace of Indonesian nickel pig iron development and nickel stock drawdown over the next three to four years, rather than high above-ground stocks unavailable to the market.

However, Woodmac noted that for those who bucked the trend, there was an upside.

As we’ve witnessed in our cyclical industry, we believe that the winners will be those producers who invest counter-cyclically. The industry needs to sow the seeds for its future – without investment a critical shortage will follow, Kettle warned.

• [Editor:Juan]