A brighter year for mining? With the world economic situation improving, the prospects for Africa's minerals are looking up.

Author:Zeitlyn, Joseph
Position:SPECIAL REPORT: MINING
 
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Mineral and commodity prospects are looking up. The outlook has been clouded for the last few years, but now the world's major economies are firing, ensuring demand for many key commodities mined on the continent. There are still risks of volatility in the global economy and these could pose problems for these shoots of optimism, as we examine below. However, due to technological changes, prospects may be brighter for many of the continent's minerals in 2018 and even in the medium term.

Global trade winds

Events in the United States and Europe caused many to believe that the commodities supercycle of the 2000s, or at least the upward trend in commodities prices, had ended.

After booming in the early 2000s, prices first fell with the financial crash of 2008. This was followed by a depressed outlook for commodities as growth and trade volumes stagnated, and China, or at least capital investment in its economy, seemed to be stalling.

However, more recent events in emerging economies, and in particular China, pose the question of whether Western economies still have as much influence over commodities markets.

While China seems set to grow at a relatively healthy 6.5%, continued "risk controls", as Citi Research notes, could take it below 6%. That possibility, notes the American lender, could seriously dampen prices for some of the continent's most valuable commodities. Zinc, copper, steel, iron ore and coking coal would all be vulnerable in the event of a Chinese slowdown.

More specifically, the cessation of Chinese winter environmental protection controls in some of its most economically vibrant eastern urban areas on the 15 March could act as a spur to commodity prices as Chinese producers rev up their engines again.

However, the actions of President Xi Jinping of China this year could prove decisive. His government may decide that the favourable economic outlook for the year makes this a suitable time to crack down on the shadow banking sector or for the tightening of bank lending rules. This could result in a slowdown in the economy, and a drop-off in fixed asset investment, the traditional Chinese engine of commodity price growth.

It is widely accepted that there is a burgeoning debt crisis in China and similarly that official growth figures are routinely fudged. Should either of these issues accelerate or blow up, that could have a severe impact on growth. The possibility of Chinese provinces curtailing investment in fixed assets--for instance in building infrastructure--could turn commodities bearish. While in the long to medium term greater regulatory oversight in China is welcome --particularly with fears of vast semi-hidden debt the possibility of investment taking fright is a major short-term worry.

Unpredictability

Chinese policy...

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