Metals Markets Steel For Price Rises As Australia Pushes To Save Cultural Sites
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Metals Markets Steel For Price Rises As Australia Pushes To Save Cultural Sites

Delays to mining projects in Western Australia could push commodity prices higher and exacerbate shortages.

By RHIANNON HOYLE
Wed, Dec 16, 2020 3:42amGrey Clock 3 min

SYDNEY—Rio Tinto PLC’s destruction of two ancient caves in Australia to expand an iron-ore mine could have ramifications for global commodity markets if local lawmakers intensify scrutiny of mining activities that threaten heritage sites.

Among the most controversial recommendations made by a federal-government inquiry into the destruction of the rock shelters at Juukan Gorge in Western Australia in May is a moratorium on expansions of existing mines or new pits that encroach on sites of cultural or historical significance. Even if lawmakers opt for a less hard-line approach, experts warn of potential delays to production and higher costs that could affect supply of key raw materials such as iron ore, used to make steel.

None of the recommendations handed down by the inquiry in its interim report on Wednesday are binding, but miners risk inflaming tensions with some investors who feel the industry needs to show greater sensitivity to environmental and cultural issues if they don’t accept them. They also face sensitive negotiations with indigenous groups that are the traditional owners of the land.

Metals prices have been rallying as China’s economy bounces back strongly and other major markets recover from the coronavirus crisis. Copper prices have risen to their highest level in almost eight years. Iron ore is one of the best-performing assets this year, fetching $150.75 a metric ton on Wednesday, its highest price since early 2013.

China’s unexpectedly strong appetite for these commodities has raised concerns over whether there’s enough supply, with many analysts predicting market deficits for iron ore and copper through at least the middle of next year.

Delays to mining projects in Western Australia, where companies dig up metals including copper and gold, could push commodity prices higher and exacerbate shortages already worsened by pandemic-driven disruptions to operations elsewhere. Iron ore is considered to be most at risk because Australia accounts for more than half of the world’s trade in the commodity by sea.

“This could be a watershed moment for the Western Australia mining industry and could impact Western Australia iron-ore production, and possibly other commodities, in 2021 and beyond,” Goldman Sachs said.

Already there are tensions between miners and some investors following the report into the loss of the Juukan caves, which contained a trove of artifacts that indicated they had been occupied by humans more than 46,000 years ago.

Fortescue Metals Ltd., the world’s fourth-largest iron-ore exporter by volume, rejected the idea of a voluntary moratorium on new heritage consents. “We do not believe that this is either a feasible or practical solution,” Elizabeth Gaines, Fortescue’s chief executive, said.

Fortescue said it had worked with indigenous groups to protect and avoid nearly 6,000 heritage sites threatened by its mining activities.

Miners must balance the need to replace the ore that they unearth with respecting the interests of indigenous groups. Fortescue pointed out that the iron-ore industry has been a pillar of Australia’s economy as it emerges from a first recession in 29 years.

“A moratorium would unnecessarily stall mining, infrastructure and other activities for an unknown and possibly extended period,” said Tania Constable, chief executive of Minerals Council of Australia, an industry group.

Still, many investors feel the industry needs to do more, and have pushed for leadership changes when standards fall short. Rio Tinto Chief Executive Jean-Sébastien Jacques and two other executives were ousted after several investors criticized the company’s initial response to the caves’ destruction because no one had been held accountable.

Hesta, an Australian pension fund for health-care workers, said it strongly supports the recommendation that companies with existing heritage approvals, known as Section 18 permissions, suspend related works until they can verify consent by traditional landowners.

“The inescapable findings of the inquiry are that Aboriginal heritage sites remain vulnerable to destruction,” said Debby Blakey, Hesta’s chief executive. “It would be unacceptable to investors that boards of mining companies are not actively and transparently seeking to understand their exposure to this risk.”

Kim Christie, an iron-ore analyst at Wood Mackenzie, said a near-term squeeze on commodities supply from Australia isn’t likely. The final report from the inquiry won’t be finalized until next year. Still, there is a risk of higher mining costs and delays to expansions or new mines later as miners sharpen their focus on heritage issues and consultation with traditional owners, she said.

“Certainly moving forward if there is going to be that greater level of tightness [in supply] it could support prices higher than we otherwise would have thought,” Ms Christie said.

Scrutiny will especially fall on Rio Tinto. A moratorium on new heritage consents could affect up to 12 projects that Rio Tinto has planned over the next five or so years to maintain its iron-ore production at current rates, Goldman Sachs said. That means there is a risk that Rio Tinto won’t ship 327 million tons of iron ore next year as the bank had earlier forecast.

Rio Tinto said it is reassessing its mining operations in places with identified heritage sites that could be affected over the coming two years.

“I think Rio Tinto would rather forgo a few tons than their reputation,” said Ms Christie, of Wood Mackenzie.



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Growth in size of U.S. market gives him extra leverage in trade negotiations with other countries

By JOSH MITCHELL
Thu, Nov 14, 2024 3 min

Donald Trump will retake office in a global economy substantially transformed from eight years ago—one much more reliant on the U.S.

It means that the president-elect’s plans, including across the board tariffs, could pack an even greater wallop on other countries than the first round of “America First” economic policy. It also gives Trump much more leverage in negotiations over trade policy.

Strong growth since the pandemic has expanded the U.S.’s weight in the global economy. Its share of output among the Group of Seven wealthy nations is higher than at any point since at least the 1980s, International Monetary Fund data shows.

Growth in China, the world’s second-largest economy, has slowed. Germany, the largest European economy, is contracting. Many poorer economies are buckling under the weight of high debt.

U.S. gains in global output partly reflect the strong dollar, which pushes up the value of American output relative to that of foreign economies. But they also result from substantial increases in U.S. productivity compared with the rest of the world.

The changes in the global economy have made America, not China, the premier destination for foreign direct investment, enlarging the exposure that foreign companies have to the U.S. economy and changes in government policy. A booming U.S. stock market has attracted huge flows of investment dollars.

“The fact that much of the rest of the world is now struggling to generate demand on its own provides more reason for countries to try to reach some sort of accommodation with Trump,” said Brad Setser , a senior fellow at the Council on Foreign Relations.

Trump started imposing tariffs in 2018, primarily on China but also on Europe and other allies. Those tariffs fractured global trade, weighing on large exporting economies in Asia and Europe, while not obviously hurting the U.S., which is less reliant on foreign demand than its trading partners. Trump campaigned on a promise to impose at least a 60% tariff on China, and an across the board tariff of 10% to 20% on everywhere else.

America’s superior economic performance has been driven in part by energy independence and massive government spending, said Neil Shearing , chief economist at Capital Economics in London. Since the U.S. now exports more energy than it imports—including millions of barrels of oil each month to China—the nation as a whole benefits when energy prices rise, unlike for net importers such as China and Europe.

The upshot: America’s traditional role as the centre of gravity in the global economy has become even more pronounced in the years after Trump’s first-term tariffs, the pandemic, and Russia’s full-scale invasion of Ukraine.

U.S. influence over Europe’s economy is a case in point. The U.S. has cemented its position as Europe’s largest export market as trans-Atlantic trade surged in recent years and China’s imports from Europe stalled. The U.S. has replaced Russia as Europe’s major source of imported energy. Europe runs big trade surpluses with the U.S. but big trade deficits with China.

The result is access to the U.S. market is far more important for Europe than access to European markets for the U.S. That asymmetry will give Trump leverage in trade negotiations with Europe, according to economists.

Germany exports around 7% of its entire manufacturing value-added to the U.S., but Germany imports only around 0.8% of value-added in U.S. manufacturing, according to a September paper by researchers at Germany’s Ifo Institute for Economic Research.

“German business is vulnerable to Trump,” said Marcel Fratzscher , president of the Berlin-based economic research institute DIW Berlin.

Parts of Asia have benefited from the changes in supply chains sparked by Trump’s initial trade war with China. Many manufacturers, including Chinese ones, moved factories to places such as Vietnam and Cambodia. For the past two quarters, Southeast Asia’s exports to the U.S. have exceeded those to China.

But that now leaves them more exposed to across the board tariffs, a policy that Trump advisers say will be necessary to force manufacturing back to the U.S.

To be sure, Trump’s policies could create countervailing forces. Tariffs would decrease imports and potentially weigh on productivity, but tax cuts would drive up household and business spending, including, inevitably, on imports. Other countries could retaliate by placing tariffs on U.S. goods.

Meanwhile, a tight U.S. labor market has pushed up wages, which is good for those workers. But it could pressure employers to raise prices, in turn making them vulnerable to foreign competition.

Many economists are girding for a different type of trade war from Trump 1.0, when trade fell between the U.S. and China but was diverted elsewhere.

“As long as protectionism refers only to one country, China, the world can live with this,” said Joerg Kraemer , chief economist at Commerzbank. “The thing becomes difficult or dangerous if you implement tariffs on all countries. This would be a new era in global trade.”