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Global packages to push up prices of metals

NEW DELHI: The sharp reduction in inventories and a bias in global stimulus packages towards metal-intensive infrastructure spending around the world could combine to create a new supply and demand imbalance, thereby pushing up prices of metals as well as deal values, according to a report released by leading global consultants Ernst & Young here.

“$2-3 trillion in economic stimulus packages have been announced around the world over the last few months and it is estimated that 30-40 per cent of this will be going into infrastructure. More than 70 per cent of the package planned by China alone is set to be in metals-intensive infrastructure spending. Mining and metals sector fundamentals continue to be compelling. A rundown in inventories and infrastructure-intensive stimulus packages around the world is likely to contribute to a new rally in the sector,” says Ernst & Young Global Mining & Metals Sector Leader Mike Elliott.

About the 2009 outlook, the report states that it expects niche deals to increase.

There will also probably be a focus on streamlining operations through the divestment of non-core assets. China-based companies and State-owned enterprises are also actively shopping for once-in-a-lifetime acquisition opportunities in the current market, particularly in low risk markets, such as Australia and Canada, the report states.

It states that in 2008, the sector went from the heights of optimism to the depths of despair with the sudden and severe collapse in mining and metals prices in the third quarter.

“Although the mining sector was the last to be impacted, financing and deals all but dried up in the fourth quarter. Consolidation will continue to be slower in the short to medium term due to financing challenges, but mining and metals companies with strong balance sheets need to be aware of the potential opportunities,” the report further states.

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