Resource rise as China, India industrialise

Commodity prices will continue on their upward path for the foreseeable future, a leading mining adviser has said.

Tim Goldsmith, PricewaterhouseCoopers' global mining leader, believes the industrialisation of countries such as China and India will strengthen demand as restrictive lending by banks delays new mines.

Mr Goldsmith yesterday supported the bullish views of the Reserve Bank about prospects for resource exports, saying the global financial crisis had stalled demand only momentarily.

The government's chief commodities forecaster, the Australian Bureau of Agricultural and Resource Economics, was more reserved, saying that it expected increases to be relatively modest.

ABARE forecasts an 18.5 per cent rise in the value of mineral exports in 2010-11 to $154 billion.

Mr Goldsmith said the rise in commodity prices would continue for as long as there was increased demand.

''I don't think the demand side ever disappeared for a long time, maybe for about three months,'' he said. ''We spoke at the time of the super cycle and things being stronger forever - I don't feel that that was far wrong. Forever is a long time but the industrialisation of China, India and Indonesia is going to happen for the best part of our lifetimes.'' Mr Goldsmith said the global financial crisis had resulted in tighter financing conditions from banks, making start-up mines incredibly difficult ''unless you are BHP or Rio''.

''Some banks have started putting their foot tentatively back in the water to start lending but it is not like they were,'' he said.

''My sense of it is that supply will get horrifically short, horrifically quickly and the time frames involved in bringing new stuff to market are going to mean the hiatus we have had is going to hurt quite a lot.

''The Chinese have understood this and that is why they have been buying up assets to ensure security of supply.''

Mr Goldsmith said the benchmarking system for pricing iron ore could soon be a thing of the past, with the ''yearly head clashing not helping anyone''.

''We are in a very fluid world where 10 years ago the major buyer, Japan in particular, was keen for certainty and therefore a long-term contract,'' he said. ''When the going has got tough, though, contracts weren't being honoured around the world. It has made it look a wee bit messy.

''It doesn't look like the benchmark system is quite the preferred way to go for participants.''

Mr Goldsmith said China would continue to be at the centre of big mergers and acquisitions, particularly in coal and uranium.

Article source:- http://www.smh.com.au/business/resource-rise-as-china-india-industrialise-20100307-pqpc.html