From future risk, to new and continued areas of growth: what can the global mining sector expect in 2018? Heidi Vella investigates.
This year, the international mining industry experienced growth in key commodities, including coal, copper and iron ore, with slight increases in prices, as well as a plethora of mergers, acquisitions and investments. But there have been many challenges to overcome too, in the form of greater opposition to new projects and stronger pressures to meet the requirements of ever-tightening transparency laws. Nevertheless, the sector has gained some stability, reduced its costs and is once again rehiring; but can it expect this growth to continue, and where might be the bumps in the road ahead?
The coal sector in 2018
After several years of low prices, coal has experienced a strong 12 months, but will it continue? James Stevenson, senior director, global coal at IHS Markit, says coal mining is still growing, globally, but some markets are faring far better than others.
“Regionally, we expect coal mining in the US and Europe to fall, but there is still a lot of growth in coal demand in Asia and India, and that is expected to grow,” he says.
US President Donald Trump’s attempts to revive America’s coal industry by cutting regulation has had the effect of slowing the sector’s decline regionally, but it is still not enough to sustain it in the long term.
“US coal demand has taken a hit from regulation, primarily in the form of extra cost on coal power plants, where companies have decided it’s better to retire – that is pretty much baked in,” says Stevenson. “It is still cheaper to build a gas plant than a coal one, and that will drive coal demand down.”
Stevenson does, however, expect very slow growth in US coal exports over time, though this will be modest compared to the rate of decline, overall, creating a net effect of less production.
Elsewhere, along with Asia, Australia is expected to see export growth next year and to meet future demand it must invest now, says Stevenson, which could be problematic due to increasing opposition to new coal mining projects in the country. But Australia has a geographical advantage of the US, allowing it to better serve growing demand in the Asian coal market.
“Investments need to be made and this should be supported by better prices,” Stevenson adds. “There is a risk, however, that production doesn’t get online as quickly as it is needed, resulting in high prices.
“Environmental opposition may have an impact on production growth in Australia and may require someone else to export, which increases the likelihood of stronger prices.”
Beyond 2018, IHS Markit is concerned that, in the long term, there will not be enough projects to meet global coal demand in the early 2020s.
This is a problem that could be exacerbated by mining majors such as Rio Tinto getting rid of coal assets because they are less competitive than others.
Future risks – think digital
According to the EY Top 10 Business Risks Facing Mining and Metals 2017-2018 report, digital effectiveness will be the number one risk for the mining and metals industry next year.
“The opportunity through digital is huge,” says Paul Mitchell, EY global mining and metals advisory leader. “But digital goes beyond just adopting new technologies: it is a critical enabler to address the sector’s most urgent operational challenge – improving productivity across the value chain.”
While many companies are some way into their digital journeys, poor implementation of technology and a gap between progress and scale of the opportunity leaves companies at risk of falling behind leading adopters.
Furthermore, despite the unprecedented rise in cyberattacks it encounters year-on-year, the report indicates that the mining industry is yet to catch-up on cybersecurity awareness.
“As the sector increasingly moves toward digital transformation, the attack surface is becoming larger and it is critical that mining and metals companies accelerate their cybersecurity programme,” adds Mitchell.
Cyber risk has risen from ninth to third position, demonstrating both the level of threat and urgency of response.
Along with digital transformation, EY highlights regulatory risk as a new entrant to its top ten business risks, as governments demand a greater return from their natural resources due to improving commodity prices and profits, while transparency initiatives continue to gain momentum.
Mitchell says: “A change in the regulatory framework can cause significant uncertainty to companies and possibly impact foreign investment. It is therefore critical that [mining companies] keep abreast of proposed regulatory changes and maintain open and transparent communications to all levels of government and their regulatory agencies.”
Other top risks, according to EY, include competitive shareholder returns, future demand dynamics being disrupted by renewables and clean energy, and access to and optimisation of energy.