June/July 2011

Supply Side

Mining marketers: prepare for the third super cycle

By Jon Baird

Mining is a cyclical industry. Mined commodity prices go up and down, and the fortunes of mining suppliers follow. Over the last 40 years, we have had four boom-and-bust cycles in our industry. While the average period was 10 years, the periods actually varied from six to 12 years.

Not long ago I was writing articles on what marketers could do to mitigate falling mining markets (CIM Magazine, February 2010, p. 64). Given the situation, I advised that cutting back on marketing during slow times would lead to a loss of market share when markets picked up. However, now that we are on the rising part of the cycle, it is timely to strategize for expanding markets.

As it turned out, the recent recession was relatively short for mining suppliers, and many firms went into it with healthy backlogs. Starting from a low in February 2009, mined commodity prices have recovered steadily and are now at pre-recession record levels.

Super cycles

Standard Chartered Bank, a British financial services company, describes a super cycle as “a period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanization and technological innovation, first seen in high catch-up growth rates across the emerging world.” The first super cycle to take place in modern times occurred between 1870 and 1913. The second followed World War II, continuing to the early 1970s. And, according to Standard Chartered Bank, the third super cycle is now happening.

The fundamental driver in demand of mined commodities is not so much manufacturing as it is urbanization. Buildings and their contents “lock in” aggregates, cement, steel, copper, aluminum and many of the products of the mining industry. In the first super cycle, our North American and European great grandparents were moving off the farm to take up jobs in cities. After World War II, much rebuilding was necessary as was the restocking of metals consumed during the war.

Combined, China and India account for a third of the world’s population, and both are now urbanizing rapidly. Standard Chartered Bank believes that the Chinese economy will grow at an annual rate of 6.9 per cent over the next 20 years, while the Indian economy will grow by 9.3 per cent. A huge amount of urbanization will be needed to house workers who move from farms to cities. In addition, natural disasters around the globe, including floods, landslides, earthquakes and tsunamis, which seem to be increasing in number, would require substantial rebuilding.

While Standard Chartered Bank sees the long-term trend as growing upwards, this does not mean that growth will be continuous, as the business cycle still does exist. In the near term, business is on the rise, with supply deficits foreseen in commodities, particularly copper and coal.

So what should mining supply marketers do? First of all, review your corporate strategies. Perhaps it is time for a new strategic planning session to set some new goals. Then, ensure that your marketing plans and budgets are appropriate for you to meet your goals.

Remember the shortage of skilled mining people in the 2007-2008 boom? This problem has not disappeared and it is expected to become worse. Perhaps you should be bullish in your hiring plans, particularly for technical sales people for international markets.

Planning is important: as the saying goes, “If you don’t know where you’re going, any road will take you there.”

Jon Baird
Jon Baird, managing director of CAMESE and the immediate past president of PDAC, is interested in collective approaches to enhancing the Canadian brand in the world of mining.

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