Posts Tagged ‘copper’


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It is hard to be anything but bullish on copper prices over the long term – GFMS

China stocked, and then de-stocked, copper last year and while there remain downside risks to the price of the metal in the near term, GFMS says, given the fundamentals the long term remains bullish

Author: Rhona O’Connell
Posted:  Thursday , 07 Apr 2011


LONDON – 
There is a possibility of the emergence of negative news for copper consumption in the near future (linked to European sovereign debt, yet more trouble in the Middle east, further tightening of Chinese monetary policy or a series of lower than expected economic indicators for key mature markets), which could produce a significant correction in the price (currently at $9,500/t).  This, though, would generate a floor for prices, which should remain comfortably above $8,000/t.  Copper prices should subsequently resume an upward path, reaching new all-time highs approaching $11,000/t.
This is one of the key conclusions from the recently-published GFMS “Copper Survey 2011”.  The research house is expecting copper production to accelerate this year in line with higher prices, but does not believe that it will be able to keep pace with demand, thus keeping the market in deficit at least through to the end of 2011.  The Survey records a residual market deficit of just over 300,000 tonnes in 2010 (just less than one week’s refined consumption).  This comprised a gross deficit of 206,000 tonnes, a fall in reported stocks of 60,000 tonnes and an increase in “unreported” stocks of 176,000 tonnes.
The increase in these unreported stocks was concentrated primarily in China and South Korea and follows a 750,000 tonne increase in unreported stocks in 2009.  GFMS notes that the majority of the stock increase in China took place in the first months of last year, when there were arbitrage opportunities between local and international prices.  GFMS information suggests that there was destocking later in the year, especially in the last quarter; some of this was the mobilisation of physical investor positions, while much of the balance came from fabricators using inventory.  Some mobilisation is likely to have come about as a result of tightening credit and the need to generate cash.  Physical premia thus fell in China towards the end of the year, although the tightness in the market elsewhere in the world meant that international copper prices continued to rise, while local Chinese prices moved to a discount to the LME.
Global consumption increased by 11% or just under 2M tonnes over 2009 to 19.4M tonnes.  Almost 600,000 tonnes of this growth came from the mature economies, while the BRIC nations contributed a gain of 1.1M tonnes, much of which, of course, was in China.  The year 2009 was one of depressed demand in the mature economies, however and demand in these nations in 2010 did not regain the levels of any of the years 2006-2008 falling short of 2008 demand by more than 700,000 tonnes.  The rapid growth in demand in the BRIC nations, and the fact that 2009 demand in the Asian Tigers was barely below that of 2008, meant that the global fall in demand in 2009 was relatively shallow; global demand in 2010 was 4.2M tonnes higher than in 2000, an annual average growth rate of 2.5%.
Total reported inventories of copper stood at end-2010 at 1.28M tonnes, a fall of 160,000 tonnes or 11% from 2009, but substantially higher than the average level over 2004-2008.  The bulk of these stocks, which equated to just less than 3-1/2 weeks’ global refined demand, were in the hands of producers and the Exchanges.
The Survey, which goes into immense detail of the copper industry all across the supply and demand chains, identifies electrical and electronic products as the largest consumer of copper, with 38% market share last year, ahead of a 31% share for building construction.  Transport, and Consumer & General Products took up 11% each, with the balance in Industrial Machinery & Equipment.  The Survey comments that the general improvement in demand was encouraging given the economic uncertainties that continued to cloud the market.  Among mature economies as a whole, the construction sector was the only area that failed to register a double-digit rebound last year; these improvements in the other sectors reflected continued government stimuli in some areas, the release of pent-up demand and strengthening export demand, although overall offtake in these sectors in the mature economies remained below historical peak levels.
The continued improvements in the BRIC nations meant that their market share increased to more than 45% of total last year, compared with only 16% in 1990.  GFMS expects this trend to continue in the years to come, reflecting the continued shift of copper-product manufacturing towards China and other developing economies.  China accounted for 37% of global copper demand in 2010, reflecting the nation’s rapid economic growth, much of which revolved around copper-intensive end-uses.  Copper consumption in the mature economies, by contrast, has been falling at an annual rate of more than 3% over the past decade, reflecting the fact that infrastructure and urbanisation processes are now largely complete in these economies, along with the shift in the manufacturing sector towards low-cost areas.  This has been exacerbated by miniaturisation and technological advances that have impeded copper consumption in the mature economies.  Copper’s intensity of use, for example (expressed as tonnes of copper consumption per million dollars of GDP), has grown from 0.41 in 1990 in China to 0.79 last year; while in Brazil it has also doubled from 0.12 to 0.23.  In the United States it more than halved from 0.27 to 0.13.
GFMS takes a generally positive short and medium-term view for the metal’s fundamentals, with the rebound in demand expected to continue for much of the year.  Primary producers are responding to higher prices; secondary production was up by 19% last year and continues to increase this year.  GFMS believes though that much of the improvement in the market’s fundamentals have been discounted by prior investor activity and this, along with a speculative overhang, does mean that there are near-term downside risks to the price.  For the longer term, however, “it is hard to be anything but bullish for copper prices”.

GFMS bullish on copper – MINEWEB

The MasterMetals Blog


DRC: Independent Audit Of First Quantum Mining Firm To Be Launched

The Democratic Republic of Congo plans to audit the operations of First Quantum Minerals Ltd. in the country to examine “suspected wide-scale misconduct,” Bloomberg reported Aug. 31, citing Mines Minister Martin Kabwelulu. A body engaged in financial auditing will carry out the investigation, which will look into allegations that First Quantum illegally exported copper ore without fully declaring it.

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Underground Dreams: Beer, Hugs and Weddings

By MATTHEW MOFFETT


SAN JOSÉ MINE, Chile—Claudio Yáñez wants beer and a hot dog. Esteban Rojas wants to finally have a real church wedding with his wife of 25 years. Raúl Bustos wants to hug his five-year-old daughter.



For Chileans, these men and their colleagues are known simply as “Los 33″—the 33 miners who have been trapped half a mile below ground since the Aug. 5 collapse of the San José mine. The men have captured the attention of the world by surviving longer underground than all but a handful of mine accident victims.

The Miracle of the San Jose Mine

Zuma Press


Ranging in age from 19 to 63, they include a former professional soccer player, a Bolivian immigrant in his first week at the mine, a salty former seaman who had premonitions about an accident and a man in his 50s who is still waiting to see the grandson born just before the cave-in occurred.

What Chileans are calling the “Miracle of the San José Mine” is the tale of how unthinkable adversity turned this motley collection of miners into a doggedly disciplined unit, how a recently elected billionaire president risked his reputation in spearheading their rescue and how family members never lost hope.

The story isn’t by any means over. It will take three to four months for a 30-ton drill to gouge a 2,200-foot tunnel down to the chamber where the men are holed up. The plan is to hoist the men out one-by-one, a journey that could take about 40 minutes for each miner.

Footage released showing trapped Chilean miners in good spirits, as they come to terms with their months long wait to be freed.
In the meantime, rescuers send food, water and letters to the miners in tubes that whoosh down the four-inch shaft that serves as the miners’ umbilical cord. Doctors are gradually ratcheting up the caloric intake of the men who each lost an average 20 pounds on rations, according to health workers. On Thursday the miners got their closest thing to a full meal in weeks: stewed apples and bread with quince jelly.

In a video released Thursday, the men—shirtless, scrawny, with scraggly beards, but big smiles—showed the world their temporary home. “This is the famous shelter,” said one of the men. They pointed to a makeshift “casino,” where they played dominoes, and demonstrated how they had divided tasks needed to keep the refuge running. One miner was keeping a journal on all that had happened. “Get us out of here soon,” said another, in the spectral lantern-light of the mine.

The men can walk a distance through some unblocked tunnels, but spend most of their time in a couple of shelters that are relatively well ventilated and protected from cave-ins.

Physiologically and psychologically, the miners have entered seldom-explored territory, says Jeff Dyche, a James Madison University psychologist, who studied submariners when he served in the U.S. Navy.

Without sunlight serving as a regulator, the human body clock runs about 24 and a half hours, Mr. Dyche says, which means the miners are “going to be completely disengaged from what time it is in the outside world.” To make sure the miners are alert on the day of the rescue, he says, doctors will have to try and re-sync the men’s body rhythms by putting them on the same sleeping and waking schedule as people above ground.

Rescue planners at the state copper company, Corporacion Nacional del Cobre, have been discussing whether it would be necessary to blindfold the miners during the extraction or or conduct the operation at night, so they aren’t overwhelmed by the light when they come out.

More immediately, government rescuers are grappling with the question of how much control to place on the miners’ communication with loved ones. Earlier this week, family members said government psychologists had asked to review the letters they send down to the miners to make sure they avoided potentially upsetting issues, such as the fact the men may not be getting out of the ground until Christmas. Luciano Reygada, whose father is in the mine, said a psychologist told him, “Don’t say that we hope you come out soon. Just say that we’ll be waiting for you when you come out.” Rescuers have since said they gently told the 33 of their estimated time of departure, and the miners seemed to take it in stride.


Sergio Donoso, the uncle of Raúl Bustos, feels responsible for his nephew’s predicament. Six months ago, after one of the biggest earthquakes in a century along with a roiling tsunami smashed the southern shipyard where Mr. Bustos worked, Mr. Donoso suggested he travel north, to the mines. “He was worried about future catastrophes, so I told him there were stable jobs in mining,” said Mr. Donoso, who has been keeping vigil above the mine.

Miners trapped underground for three weeks in Chile are offered unusual help from the space agency NASA as they prepare to endure further weeks below ground. Video Courtesy of Reuters.

Mr. Bustos’ mother, Rosa Ibañez, came to the mine right away from her home in far-off southern Chile. It was the first time she’d flown on a plane. In Mr. Bustos’ first letter to his family this week, he said that he’d come up with a nickname for the diamond-tipped drill that rescuers had used to locate the men’s underground shelter: He called it “María Paz,” in honor of his five-year-old daughter, who relatives say is a handful.

Gregory Belenky, director of the Sleep and Performance Research Center at Washington State University, says the Israeli military found during the 1973 Yom Kippur war that the wrong kind of communication with family could add to stress. But Mr. Belenky, who served 29 years in the U.S. Army working on combat stress and other issues, thinks he would level with the miners about the rescue strategy “so they can plan, adjust expectations and so everyone is on the same page.”



The plight of the 33 men has been an eye opener for many Chileans. One of Latin America’s most advanced economies, Chile has been a darling on Wall Street for its free-market ethos. Its capital, Santiago, is clean and modern, with a scaled-down version of the Chrysler Building. But despite the emergence of other industries, including finance and construction, mining remains the bedrock of the economy, accounting for the biggest share of exports and output. The accident and rescue have allowed Chileans to get acquainted with people who are responsible for much of the country’s prosperity, but remain largely hidden from view due to the very nature of their work.


When the miners broke out into a ragged chorus of the national anthem after the first telephone contact was made with them on Monday, it was as “as though we couldn’t believe that some countrymen are still that way, of that caliber and that timber,” wrote Daniel Mansuy, a professor of political philosophy, in the Santiago newspaper La Tercera. Family members holding vigil above the mine said it more simply on a message emblazoned in marker on a Chilean flag: “Chile without miners isn’t Chile.”


The miners had no way of knowing what was in store for them when they showed up for their shift that fateful Thursday, Aug. 5. Like many of the miners, Mr. Yañez, who had worked eight months in the mine after leaving a low-paying construction job, “was just desperate for a paycheck” says his half-brother Pablo Lagos.


Twenty-four-year-old Bolivian Carlos Mamani, who emigrated to Chile to find work, was only in his first week at the mine, his brother Cesar Mamani told Chilean television.
While Chile on the whole has a good mining safety record, smaller to mid-sized mines like San José often escaped scrutiny by the understaffed mine regulator, according to unions and workplace-safety experts. After the accident, Chile President Sebastián Piñera cleaned house at the regulatory agency and announced the government would take a tougher line in the future.

The 121-year-old mine, operated by Chile’s Compañia Minera San Esteban Primera, had been shut down for about a year by regulators in 2007 after an explosion killed a miner. Mario Gomez, a former sailor who at 63 is the oldest of the trapped San José miners, had a nephew who lost a leg in an accident at the mine several years before that. Mr. Gomez’s wife, Lilian Ramirez, said her husband told her he was afraid of going to work not long before the collapse.


The collapse occurred at around at around 2 p.m., sending up a massive dust cloud. “We felt like the mountain was coming down on top of us and without knowing what was happening,” Luis Urzua, one of the leaders of the trapped men, would later say in a phone hookup with Mr. Piñera. “Then came the dust cloud, like four or five hours in which we couldn’t see anything.” The men lost a chance to escape through a ventilation duct in the first days of the crisis because mine managers hadn’t installed an emergency ladder, as required by law, Chile’s mining minister, Laurence Golborne said.
Firemen weren’t alerted of the accident by the mine managers until about six hours after it had occurred. The delay in reporting the collapse is part of a wide-ranging investigation into the mine by regulators and Chile’s Congress. Minera San Esteban Primera’s owners have said they tried to run a safe operation. They didn’t respond to requests for comment for this story.
The day after the cave-in, civil defense officials had mustered a 40-man rescue crew to go in after the missing miners. But the mission nearly wrought another tragedy, as the rescuers confronted a cascade of falling rock and buckling walls. “Rocks, dust, darkness, heat,” said fire captain Rafael Gonzalez Perez. “It was impossible.”
The mine collapse presented a challenge for President Piñera, a billionaire airline and television mogul, who took office in March. Chile’s first conservative president in two decades, Mr. Piñera has promised to run Chile as efficiently as he had his businesses. In a gamble that might have backfired if the rescue had failed, he cut short a trip to Colombia to go to the mine and has made three follow-up trips since. “It was a big bet but also a very important one at the core of his political message” of competence, said political scientist Patricio Navia.
Unable to send in rescuers to fetch the miners, the government shifted to Plan B: Drilling down from the surface after the trapped men.
But after a couple of days, the effort was looking like a geological shot in the dark. Engineers were finding the maps of mine weren’t accurate. “The situation is very complex,” President Piñera said at the time. “The mine continues collapsing. It has a geologic fault. The mine is alive and that enormously obstructs rescue work.”

Families at the site started hunkering down for a long haul, putting up tents or crude lean-tos made of garbage bags stretched above poles. Dubbed Campamento Esperanza, Camp Hope, the place took on a somewhat surreal air. The government started trucking in water and food, as well as sending counselors, cooks and kindergarten teachers. Shrines with votive candles and statues of baby-faced Saint Lorenzo, the patron saint of miners who is often decked out in a hard hat, sprang up alongside television satellite trucks and portalets. Other iconic figures were called on for luck. Relatives of 34-year old Edison Pena put the miner’s picture on a placard along with Elvis Presley, assuring him that “you will be bigger than Elvis” after emerging from the mine.
Below ground the 33 miners were also getting organized. Mr. Urzúa, a soccer coach in his spare time, was one of the leaders. He oversaw the rationing of their food stores, so that miners could have a couple of mouthfuls of tuna, along with a canned peach and some milk every 48 hours. But after two weeks the miners had almost exhausted their provisions, Mr. Urzúa said.


Worry also spread through the camp full of families. Ana Funes, a social worker from a nearby town, organized art classes for children as a diversion. But some kids’ anxieties consumed them, says Ms. Funes. On a bulletin board, along with crayon drawings of Spiderman and a fairy princess, was a self-portrait of a pig-tailed girl with tears streaming down her cheeks. “I love you, cousin,” was the caption.

By the end of last week, a number of the families were losing faith in the government drilling strategy. They pressed Mr. Piñera’s rescue team to let 10 volunteers into the bowels of the mine to bring out their loved ones. Government officials said that was foolhardy.

“We have done and will continue doing what’s humanly possible,” President Piñera said. “But not everything is in the hands of our engineers and technicians. It’s also in the hands of God.”

A little after 6 a.m. last Sunday the probe broke through an underground chamber, a short distance from the miners’ main shelter. The 28-year-old drill operator, Eduardo Guerra, thought he felt some vibrations coming from below. Some engineers came over with stethoscopes and said they heard something, too. When Mr. Guerra pulled the probe out of the ground, a plastic bag had been attached to the drill tip with cable and rubber bands.

Inside the bag was a note painted in red: “We are well in the shelter the 33.”

Write to Matthew Moffett at matthew.moffett@wsj.comCopyright 2009 Dow Jones & Company, Inc. All Rights Reserved

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In Chile, Trapped Miners Dig in for the Long Haul – WSJ.com


Goldman Backs Oil, Copper, Gold, Maintains `Overweight’ Commodities Call

Commodities demand from emerging markets and limited growth in supplies will help to support prices toward the end of the year, according to Goldman Sachs Group Inc., which backed oil, gold, copper, zinc and platinum.
The bank reiterated an “overweight” recommendation on commodities, analysts led by Allison Nathan and Jeffrey Currie wrote in a report. Goldman pared its 12-month forecast for the S&P GSCI Enhanced Total Returns Index to a 19 percent gain from 21.6 after recent gains in agricultural commodities and metals.
Commodities last week had the worst weekly performance in six after the Federal Reserve said the recovery is weakening and European industrial output fell, stoking concern that there may be a double-dip recession. Reports also showed China’s retail sales and new lending grew in July at a slower pace than June.
“We are not overly optimistic about commodities prices in the second half,” Ni Xiaolei, a trader at Donghai Futures Co., said from Jiangsu today. “‘We saw a very sharp ascent in commodity prices last month, which will be hard to sustain as global macroeconomic data emerges weaker than expected.’’
Goldman’s commodity ‘‘overweight’’ call was maintained even as the bank has been paring forecasts for U.S. and Japanese economic growth for next year. Ed McKelvey, Goldman’s senior U.S. economist in New York, has also said that the chance the U.S. may tumble back into recession is as high as 30 percent.
Gold, Crude
Gold, which surged to a record $1,265.30 an ounce in June amid concern sovereign-debt levels in Europe may be excessive, traded at $1,29.60 at 2:11 p.m. in Singapore, 11 percent higher this year. Goldman forecast a rise to $1,260 in three months and to $1,300 in six. New York crude futures were at $75.86 a barrel, 4.4 percent lower over 2010. Goldman’s report put them at $92 a barrel in three months.
‘‘The current softness in economic data, combined with increasingly mixed signals from the underlying commodity markets, is likely to continue to generate choppy commodity-price action in the near term,” the Goldman analysts wrote in the Aug. 13 report. Still, “high and rising emerging-market demand levels against limited supply growth in key commodities are likely to increasingly tighten balances,” they wrote.
Japan’s economy expanded at an annualized 0.4 percent in the three months to June 30, the Cabinet Office said today. That’s the slowest pace in three quarters. U.S. industrial production figures are due for release tomorrow, the same day as data on investor confidence in Germany.
Chinese Demand
Commodity prices may advance into the end of the year on evidence of increased oil demand in China, a decline in crude stockpiles in Europe and the U.S., and further falls in metals inventories, the report said.
“We expect upside to be greatest for crude oil, copper, zinc, platinum and gold,” it said. “Improved data will likely be required to sustain rising prices.”
Goldman Sachs last week backed gold to resume a rally and climb to a record $1,300 an ounce within six months on renewed investor interest. The precious metal, which has risen for nine years to last year, may also climb in 2011, the report said.
A ban on wheat exports by Russia helped to drive futures to $8.68 a bushel earlier this month, the highest price in almost two years. The country is battling reduced grains production amid the worst drought in at least 50 years.
‘Sharp Gains’
“Commodity returns rose over the past month led by sharp gains in the agricultural complex owing to weather-related supply shocks in wheat,” according to the Goldman report.
Zinc, trading today at $2,080 a metric ton, has fallen 19 percent this year, making it the worst performer on the London Metal Exchange. Goldman’s analysts forecast that the metal may climb to $2,121 a ton in six months, according to the report.
Copper rose 1.3 percent to $7,246.50 a metric ton, paring this year’s loss to 1.7 percent, while platinum gained 0.8 percent to $1,535.75 an ounce, 5 percent stronger this year. Goldman forecast copper at $7,925 a ton in six months.
Japan will grow 1.4 percent in 2011, compared with an earlier forecast of 1.7 percent, Goldman’s Tokyo-based senior economist Chiwoong Lee said in a report dated Aug. 7. The week before that Goldman lowered its projection for U.S. growth for the same year to 1.9 percent from 2.5 percent.
To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

Goldman Backs Oil, Copper, Gold, Maintains `Overweight’ Commodities Call – Bloomberg

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Sub-Saharan Africa economy: Strategic rise
FROM THE ECONOMIST INTELLIGENCE UNIT
July 13th 2010

Rising global competition for commodities is giving a new strategic importance to resource-rich Sub-Saharan Africa. China and other emerging industrialised countries are vying with the subcontinent’s former colonial powers to acquire long-term stakes in mines, oilfields and other commodity assets. With unprecedented volumes of investment on offer, the stakes are high not only for resource companies seeking to expand in Africa but also for the region itself. The challenge for African governments will be to manage their commodities better to avoid a repeat of the boom-and-bust years of the 1970s-90s.

Natural resources are hardly a new story for Sub-Saharan Africa. For decades the region has depended on exports of commoditiesóoil, hard minerals and cash cropsóto fund economic growth, though often with disappointing results. The collapse in commodity prices in the late 1970s and the mismanagement of revenue inflows resulted in weak growth and rising poverty, cementing the belief that Africa’s dependence on commodities retarded its economic development. However, soaring emerging-market demand for commodities in recent years, coupled with the increasing scarcity of hydrocarbons and hard minerals, has changed the picture. Sub-Saharan Africa has become a prime target for adventurous foreign investorsówith Chinese companies playing a particularly prominent roleówith the result that the subcontinent once again has the opportunity to benefit from its natural wealth.

Sub-Saharan Africa is one of the most commodity-rich regions of the planet. The subcontinent contains the majority of known reserves of many key minerals, including 90% of the world’s platinum-group metals, 90% of the world’s chromium, two-thirds of the world’s manganese, and 60% of its diamonds. It contains 60% of the world’s phosphates, 50% of the world’s vanadium, and 40-50% of the world’s gold. Sub-Saharan Africa also boasts one-third of the planet’s uranium reserves, one-third of its bauxite, and 10% of all oil reserves (the bulk of which are concentrated in the Gulf of Guinea in West Africa).

Most of these resources are underexploited. Uneven development has resulted in a handful of countries dominating commodity exports. The most important by far, both in terms of the diversity of its commodity base and the volume of its exports, is South Africa. The subcontinent’s other commodity giant is the Democratic Republic of Congo, which sits on over half of the world’s cobalt reserves and 25% of its diamonds, as well as having large quantities of rare metals such as coltan (used in mobile phones). Nigeria and Angola dominate oil production. However, other countries are starting to develop their commodity resources, and several are set to become major producers in the near future. They include Guinea and Angola (iron ore), Ghana (hydrocarbons), and Guinea-Bissau (bauxite and phosphates).

Sub-Saharan Africa also boasts a large agricultural sector. Much of this focused on the production of cash crops for export to the West during the colonial period and in the first years after independence. Since the late 1970s Africa has lost global importance as an exporter of many cash crops. The main exceptions have been coffee, cocoa and tea, for which CÙte d’Ivoire, Ghana, Uganda and Kenya remain key global producers, and more specialised crops like cashew nuts (Guinea-Bissau) and vanilla (Madagascar). However, increased competition from Asian and Latin American producers, coupled with a decline in Africa’s terms of trade, has eroded profitability. Africa also continues to export large quantities of timber, particularly to China, but poor forestry management is threatening the sector’s sustainability.

A scramble for access

Major emerging markets are playing a key role in the development of the region’s commodities sector. Since the early 2000s China has invested heavily in African commodities, reflecting the two-pronged strategy of China’s state-owned oil and mining companies: first, acquiring access to reserves through long-term contracts; and second, purchasing stakes in local ventures whenever possible. According to the Chinese government, by end-2008 total Chinese investment in Sub-Saharan Africa amounted to US$26bn, including stakes in oil and gas concessions in Sudan and the Gulf of Guinea, copper mines in Zambia, iron concessions in Gabon, and ferrochrome and platinum mines in South Africa.

China is not the only player around. Chinese interest is increasingly being matched by investment from Indian or Indian-linked firms, notably the steel manufacturing giants Tata Steel and ArcelorMittal, which are acquiring stakes in large coal concessions in Mozambique. Brazil is also stepping up its investment. Given the expertise of Brazilian companies in construction, engineering and the oil sector, it is likely that these firms will provide stiff competition for contracts in the next phase of Africa’s infrastructure expansion.

Competition looks set to be particularly intense in the Gulf of Guinea, which continues to grow in strategic importance thanks to the steady increase in its proven oil reserves (a result of better deep-water drilling technology). The region is already the focus of military co-operation programmes between African governments and the US, EU and China. Tensions between these powers could increase as each seeks to establish a foothold in the region. Such a situation could prove advantageous to countries in the Gulf of Guinea if they are able to play off competing powers against each other. However, past experience indicates that such competition and strategic alliances can be used to prop up unsavoury regimes. This also poses potential difficulties for foreign investors. China is learning the hard way that its resource grabs can expose it to reputational risks over human-rights and environmental abuses.

Reaping the benefits?

There are plenty of other challenges. The region exports a lot of its commodities in unprocessed form, thus missing the chance to add value to them. For example, Guinea-Bissau exports its entire cashew crop (over 90% of the country’s exports) to India for processing. The creation of low-tech processing operations could capture more of the value of the crop, as well as creating significant numbers of jobs. However, efforts to develop processing industries in Africa have proved disappointing owing to the constraints of the business environment, poor management and competition from processors in India and China.

Broader challenges include managing capital inflows better and maximising the economic benefits of foreign investments. Progress is occurring, with improved local-content provisions in mining contracts, the imposition of tighter environmental standards and greater transparency over commodity revenues. However, greater efforts are needed. African governments must ensure that infrastructure development does not just support the exploitation and export of minerals but also facilitates trade and the movement of people and goods. Local workforces must be trained in new skills and not just used for manual labour. A large proportion of oil and mineral revenues need to be held outside the countries in question in order to prevent currency appreciation that could render other industries uncompetitive.

If African governments can realise these aims, there is a good chance that the subcontinent’s natural-resource endowment could provide major benefits to the population. Otherwise, the next wave of commodity development will merely entrench poor governance and corruption and further stifle economic development.

The Economist Intelligence Unit

Source: Global Forecasting Service

© 2010 The Economist Intelligence Unit Limited. An Economist Group business. All rights reserved.

Sub-Saharan Africa economy: Strategic rise Sub-Saharan Africa economy: Strategic rise ViewsWire
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2009’s Top Story: China pushes silver and gold investment to the masses

A report suggests that the Chinese government is pushing the general public into buying gold and silver bullion, which could have a dramatic effect on the markets.

Author: Lawrence Williams
Posted: Thursday , 03 Sep 2009

LONDON

We are indebted again to Paul Mylchreest’s Thunder Road Report for news that will bring big smiles to gold and silver investors everywhere. Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder. If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!

The report notes that China’s Central Television, the main state-owned television company, has run a news programme letting the public know how easy it is to buy precious metals as an investment. On silver investment the announcer is quoted as saying ” China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive than silver in 2007, but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in.”

What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity. This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled. Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.

Around a year ago, Leyshon Resources managing director, Paul Atherley, in an investor presentation in London – and no doubt delivered elsewhere in the world too – commented that some employees at the company’s gold mining project in northern China would, on pay day, go to the local bank and buy a small gold bar as an investment and wealth protector. To an extent we put this down at the time to mining company hype – but this seems to be exactly the same phenomenon noted by Thunder Road. The Chinese are being converted from being the lowest per capita gold consumers in the world to a nation of small precious metals investors. Now, by next year, Chinese consumption of gold is likely to exceed that of India, which has been for years the world’s biggest gold market. And one suspects that the potential for gold purchasing by individuals is only in its earliest stages. As more and more Chinese move into the cities and individual wealth grows, this trend is only likely to accelerate.

Paul ends the piece on Chinese gold and silver potential with the following quote from Christine Verone, the first (and only) foreigner in the country to become a certified “expert” on the Chinese gold markets, a designation awarded exclusively by the Shanghai Gold Exchange…and also the first foreigner in history to ever be licensed in any professional capacity by a Chinese commodity exchange.

“Simply put, the Chinese government is trying to trigger a national gold craze…and it’s working. The Chinese public now has gold trading platforms on steroids…. …Also, for the first time in history, Chinese investors can even trade gold abroad (in London) with the swipe of a ‘Lucky Gold’ card. I can’t even get Bank of America to open a foreign currency account.”

Certainly if China is indeed pushing the public to buy gold then there may well be a hidden agenda here. It’s unlikely they are doing it and will suddenly pull the rug out from under millions of investors. A cynic (or a raging gold bull) would suggest that this will precede a move to switch a good proportion of the country’s reserves into gold which would have a huge effect on the global gold price and could prove disastrous for the dollar. Maybe it’s not in China’s interests to drive the dollar down too much until it has managed to divest itself of the huge dollar overhang (see the article on Chinese Sovereign Wealth Funds we published yesterday – Chinese sovereign wealth fund dumping dollars for strategic investments like gold ). The country may well already be, of course, surreptitiously building its gold reserves without reporting the build-up.

If the Chinese are indeed beginning to buy gold and silver as the quoted report suggests then this has to be a strong signal that prices are going to rise, and perhaps rise dramatically, in the relatively near future. We await comment from other China watchers for confirmation of the gold and silver buying spree, but with global gold production at best flat and probably in decline, even a small increase in Chinese buying could have a substantial impact on gold and silver prices.

Mineweb – 2009`s Top Story: China pushes silver and gold investment to the masses – GOLD ANALYSIS

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