Red lights flash for miners over US, Chinese economy

First Published in Business Day on   October 3rd, 2024   |   by   Gracelin Baskaran

Red lights flash for miners over US, Chinese economy
GETTY IMAGES/CHRISTOPHER FURLONG

With less than 35 days until the US election, if I had five bucks for every time someone in the world asked me what’s going to happen I probably wouldn’t need to work again.


 However, I was in London last week and had the chance to address the issue more productively at the Financial Times Mining Summit, on a panel themed “Geopolitical Update: Elections, China and Protectionism”. Here are some reflections on how these issues may affect the mining sector. 


 First let’s look at the US election, which could usher in vastly divergent policies if Donald Trump emerges as winner.


 'For example, most of the demand for critical minerals is anticipated to come from electric vehicles (EVs). According to modelling by the International Energy Agency from 2020, EV demand is expected to require 30-million tonnes of critical minerals by 2030, making up about 75% of the minerals needed for clean technology. By 2050 demand from EVs is expected to exceed 130-million tonnes, which would represent about 90% of the minerals required for clean tech. 


 JD Vance, Donald Trump’s vice-presidential nominee, wants to do away with the $7,500 tax credit for purchasing an EV and has proposed a bill that will provide a $7,500 subsidy for petrol or diesel-powered vehicles instead. It’s a sentiment shared by the far right globally. Italian transport minister Matteo Salvini has condemned an EU ban on internal combustion engines, calling it a job-killing “madness” that would advantage China.


 Similarly, Czech legislator Alexandr Vondra has referred to those in favour of stricter vehicle pollution limits as the “gravediggers of the automotive industry in Europe”. Each EV requires 210kg of critical minerals on average, compared with just 30kg in a traditional internal combustion engine. A rollback in EV policies would drastically suppress demand, and by extension minerals prices. 


 We’re also likely to see a rise in protectionist policies in the US — specifically import tariffs — for minerals-intensive goods, which will increase prices and, by extension, reduce demand. Trump has proposed a 20% tariff on all imports other than those from China, which would be slapped with a 60% tariff. This would cost the average American household at least $2,600 a year, a significant amount. The outcome would be households buying fewer electronics, cars and other minerals-intensive goods. 


 We’ve already seen what happens when things become less affordable. In 2023 the retail industry had its hardest year since the pandemic after high interest rates made the cost of purchasing goods more expensive. Even if interest rates continue to decline a rise in protectionist tariffs will lead to lower spending. 


 Turning to the state of the Chinese economy, the outlook for minerals is bleak. China has long been the biggest buyer of base metals, consuming more than half of global output. Now it is struggling with compounding economic challenges, including high youth unemployment, extremely high levels of local government debt, a bankrupt real estate sector and below-target economic growth. 


The IMF recently noted that China’s fiscal outlook is weak and that its economic risks are “tilted to the downside”. This means the world’s biggest off-taker will take off less. Goldman Sachs recently cut its 2025 copper price forecast from $15,000/tonne to $10,100/tonne on the basis of a depressed Chinese property sector. 


 A palpable degree of uncertainty surrounds us globally amid elections, political transitions and shifting dynamics in key global economies. But the mining sector, which is already beholden to age-old boom and bust cycles, is particularly precarious.


 Four more years of Trump, a Chinese economy that is unable to recover and an influx of protectionist policies could have a negative effect on mining companies worldwide when they are already struggling after several years of weak prices. 


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