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The economic fundamentals for the mining industry remain favourable from both the supply and demand sides.

The world economy: recovery continues but risks remain

At the start of 2010, the world economy was in the early stages of recovery. China led the expansion following the government’s massive stimulus package. In the first half of 2010, China’s economic growth was well above its long term trend rate. Other emerging economies – notably India and Brazil – also grew strongly, reflecting government stimulus measures and a recovery in private demand. In spite of the severity of the financial crisis, the major advanced economies also recovered, thanks to huge policy stimulus and the mechanics of the inventory cycle. The US economy experienced a particularly pronounced turn in stock building, propelling robust above-trend growth early in 2010.

Yet, as the year progressed, macro-economic challenges began to build across the world. Surging demand in the large emerging economies triggered concerns about rising inflation. Both Brazil and India registered inflation rates above their central banks’ objectives, leading them to raise interest rates to slow economic growth and restrain inflation. Following administrative measures to dampen the housing market, the Chinese authorities also responded to intensifying inflation concerns by tightening monetary policy and implementing controls on some prices, notably for many food products. In the second half of 2010, economic growth moderated slightly, suggesting policy restraint was feeding through.

In the major advanced economies, there was some cooling of economic growth. As stimulus and inventory effects faded, it became clear that underlying demand was still subdued. The after-effects of the financial crisis weighed on economic activity, especially in the US. Critically, weakness in the labour market led to continuing problems in the housing market. After signs of some stabilisation earlier in the year, there was a renewed deterioration in home sales and prices late in 2010. This growth disappointment forced the Federal Reserve to announce a second phase of quantitative easing (QE2). More significantly, the administration agreed a further fiscal stimulus package with Congress, with broad-based tax cuts.

In the spring, the EU and the IMF announced large-scale financial support for Greece to alleviate concerns over the government’s financial strength. Europe’s fiscal crisis worsened at the end of the year, with the EU/IMF announcing a support package for Ireland and growing speculation of contagion to other economies in Europe. Many governments have tightened fiscal policy to rein in budget deficits. In spite of huge interventions from the IMF, the EU and the ECB and significant fiscal consolidation at the national level, government bond markets remain febrile. There are continuing doubts over the long term solvency of some countries as well as nervousness over the impact of fiscal tightening on economic growth.

China's share of global
consumption, 2010

China's share of global consumption, 2010

Economic activity in the emerging economies tends to be more ‘resource intensive’, suggesting that robust GDP growth will support continuing high levels of demand for industrial commodities.

Commodity prices: strong recovery with
increasing volatility

Annual average prices for our core commodities in 2010 were significantly higher than in 2009. The robust recovery at the start of the year drove improvements in all commodity prices until around May. Monthly average prices for steel making raw materials fared particularly well, with iron ore prices up 35-40%, hard coking coal 15%, and nickel 19%. From May, Europe’s intensifying crisis and worries about a ‘double dip’ created more volatility; by July, prices had dropped back to around their 2010 opening level. In the second half of the year, prices recovered, alongside improving confidence in demand, closing at levels that were typically around 30% ahead of the year opening.

In the platinum group metals sector, the stand-out price performance for the year was from palladium, with an average January to December price increase of 74%, driven by a strong recovery in vehicle sales and autocatalyst demand, and an expectation of future industry tightness as Russian stocks are depleted. Average platinum prices increased by 9%, driven by the recovery in vehicle sales, and a strong recovery in industrial demand. Rhodium drifted down 12% to a December average of $2,291/oz.

Iron ore prices performed extremely strongly, increasing by 38% ex-Australia and 51% from Brazil. Crude steel demand in 2010 rebounded to 1.4 bn tonnes from the 2009 low of 1.2 bn tonnes, driven by Chinese growth and OECD recovery. Chinese iron ore imports in 2010 decreased 2%, with Chinese domestic production (run of mine basis) increasing around 22%, the associated higher costs supporting the industry price growth. Monthly average nickel prices increased 31% between January and December, with consumption growth in 2010 of 12% and a general view the market was in a modest deficit. The nickel price was particularly volatile, dropping to $7.73/lb in early February, peaking at around $12.52/lb in mid April and finishing the year at $11.32/lb.

Monthly average copper prices increased 24% through the year, with significant volatility in the first half, dropping from a monthly average of $3.35/lb in January to $2.95/lb in June, but then recovering strongly in the second half to $4.15/lb in December. Demand growth was around 10% in 2010 with relatively tight supply. US dollar weakness, historically-low global real interest rates and the anticipation of the physically-backed ETF launches probably reinforced the price gains.

Thermal coal prices increased 33% ex-South Africa and 20% from Australia as the traded thermal coal market, which had traded sideways in 2009, subsequently recovered, and China and India stepped up their imports. Hard coking coal prices ex-Australia increased by 10% as global steel demand recovered. Chinese imports increased around 30% and Indian imports were up by some 24%.

Exchange rates against
US dollar

% change between closing spot rates on
31 December 2009 and 31 December 2010

Exchange rates against US dollar

Commodity currencies appreciated strongly
against the US dollar.

World industrial production

% change, latest three months on previous
three months

World industrial production

Industrial activity slowed moderately in 2010.

GPD per capita relative to US

in 1990 US$ at PPP, US = 100

GPD per capita relative to US

China and India should continue to 'catch up' with the advanced economies.

Finished steel demand

Kg per capita

Finished steel demand

The intensity of finished steel demand in China
continues to grow strongly, driven by ongoing
urbanisation and development.

Change in month average price

December 2010 versus January 2010

Change in month average price

Most of our products experienced major price
increases of over 20% during 2010.


In spite of some uncertainties, the economic recovery should continue in 2011 and beyond. In the US, a combination of looser monetary and fiscal policies should support a gradual improvement in final demand, which should reinforce the recent acceleration in consumer spending and business investment. In China, policymakers are weighing the trade-off between economic growth and higher inflation. Administrative measures should help to contain inflation, preventing the need for a more broad-based policy tightening, which would increase the risks of a more disruptive growth slowdown. Macro-economic policy should remain supportive of economic growth. Signs of moderating inflation in other emerging economies should also alleviate the pressure for further policy tightening.

Overall, global GDP growth should remain resilient in the medium term. Though growth could ease in the major emerging economies, it will continue to outpace more modest growth rates in the major advanced economies. Over time, China’s development model will evolve towards more consumer spending, in line with growth in other emerging economies such as Brazil and India. Even so, economic activity in the emerging economies tends to be more ‘resource intensive’, suggesting that robust GDP growth will support continuing high levels of demand for industrial commodities.