Into The Next Millenium - The Long Bull Market In Minerals

In the post-World War II years, metals analysts and statisticians have tracked the demand for metals in line with changes in Organization of Economic Cooperation and Development (OECD) industrial production (IP) growth rates, Williamson said. This was because the correlation between IP growth and metal demand was reasonable. "However, the correlation was exaggerated," he said. During times of expanding IP growth, metal demand increased at a faster proportional rate than IP growth. This was probably due to industry restocking in anticipation of growing demand at the start of each economic cycle. Conversely, metal demand would slacken at a greater rate than would be suggested by negative IP growth as industry destocked to reduce costs. Nonetheless, he said, a reasonable correlation could be painted between IP growth over the longer term and metal demand. "Yet, although this correlation has stood well since the last world war, it has been based on the fact that the bulk of the world's IP growth stemmed from the industrialized countries of the western world, lately including Japan," Williamson said. The so-called "developing world" had been of little consequence. The Soviet Union and other communist bloc countries were deemed to be closed, self-contained entities that, for each metal, would either be net exporters or importers, he said. These quantities would be used by analysts to calculate the overall supply/demand equation for the western world only and to deduce whether a commodity was in shortage or surplus. It is now believed that this method of projecting total world supply and demand for raw materials is outdated, Williamson said. It does not take into account the worldwide political changes that have occurred since the collapse of communism and the revitalization of China. "It is no longer appropriate to assess global balances for raw materials on the basis of three economic blocs," he said, including the western world, developing world and communist bloc. Rather, global balances need to be projected on a global basis. In this regard, since the collapse of communism and the removal of many other totalitarian regimes, capitalist forces are attempting to satisfy the expectations of the great mass of the world's poorer people, Williamson said. Such people, usually located in Asia, Africa and Latin America, have aspired to the same standard of living as people living in western Europe, North America and Japan. "Now, with free market forces at work, their aspirations will start to be met." Consequently, the demand for metals and other raw materials will now rise at a much faster rate. The production of raw materials has to keep pace with rising IP in the developed world. It will also have to keep pace with the demands associated with the rising expectations of increasing populations in the developing world, as well as from within the old communist bloc countries.