No short-term pickup in demand is in sight for the global metal industry, but supply-side reductions and the long-term of development of the BRIC nations (Brazil, Russia, India and China) could bolster the industry in the long run, according to Standard Bank's metal chief, speaking at a conference Tuesday.

 

Thys Terblanche, head of mining and metals at Standard Bank, told delegates during a speech at Mining and Money 2008 Congress held in London Tuesday that the world had changed considerably in the last year and that in the current investment environment things were likely to get worse.

 

"Commodities prices have fallen off the cliff and there has been a total destruction of confidence. Fingers have been pointed to hedge fund activity and there's no doubt that confidence has fallen off there as well," said Terblanche. "The level of desperation and focus on survival is evident all around."

 

Terblanche added that the industry had seen prices totally disconnect from underlying fundamentals and that supply and demand issues did not matter in the current environment. He added, however, that resource supply issues which bolstered the market last year remained relevant to the industry, although employee, raw materials and resource factors which had limited the development of projects six to nine months ago, had been overtaken by difficulties in securing finance.

 

"Shortages of steel, difficulties finding employees and other such factors had put the squeeze on supply a year ago," said Terblanche, "now it's about the lack of supply of finance."

 

The rapid and extreme slump in the size and profitability of mining companies is a clear sign of the severity of the current global economic situation, according to Terblanche, who gave Anglo-Australian giant BHP Billiton as an example of how mining majors had fallen down the scale of the largest companies in the world in just 12 months, losing a significant proportion of its value.

 

"Demand is going to drop but then so will supply -- a number of projects are being forced to close down and more will follow," Terblanche said. "The BRIC countries still have a key part to play and we believe that debt will follow equity back into the market. The question is when." -Platts