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Cynthia Carroll, CEO of Anglo American, is facing a difficult results presentation amid falling earnings.

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Anglo questions sustainability of recovery

I-Net Bridge | Mon, 28 Sep 2009 11:32
[miningmx.com] -- Resources giant Anglo American is seeing the first signs of a global economic upturn, but questions the sustainability of the recovery.

Speaking at the Brisbane Mining Club, Anglo American chief executive Cynthia Carroll said in recent weeks there had been sharp improvements in business sentiment in all of the world's major economies with leading indicators rising and stock markets surging.

"The near-term outlook has improved much more quickly than most observers expected," Carroll said, adding that the prices of many commodities had also strengthened.

Copper, nickel, spot iron ore and metallurgical coal prices have all recovered from their low points in late 2008 as inventories are rebuilt.

"But there are still some question marks over the sustainability of the recovery," Carroll said.

"Continued deleveraging by households, companies and banks and the shadow of rising unemployment and large budget deficits in the major Western economies are still a great concern," she added.

She said the large-scale policy stimulus had helped to support economic growth, particularly in the developing economies.

Looking at China, the engine of growth for bulk commodities and base metals, she said Anglo had seen near-record levels of imports of copper and coking coal in recent months as the government's huge fiscal stimulus begins to counter the downturn in exports.

"We may see some easing in growth in the short term but the longer-term fundamentals remain sound. The BRIC economies are stepping up their spending on infrastructure in coming years. The IMF estimates that, in respect of the G20's emerging economies, increased infrastructure spending accounts for around half of the total fiscal stimulus in 2009-10," said Carroll.

In China, the government's stimulus package includes an additional US$250 billion to $300 billion of infrastructure spending by the end of 2010 and India is set to invest US$500 billion between now and 2012.

While recognising the interdependence of the world's leading economies, policymakers in both China and India have made clear their determination to support domestic demand growth to offset the weakness of their exports to the major Western economies.

"The long-term fundamentals for the mining industry remain very robust from both the demand and supply sides. The industry has seen curtailment of many high-cost operations in nickel, iron ore and coking coal. At the same time, the difficult financing conditions are expected to continue, which will impact the funding and timing of many potential new mines and expansions constraining supply as economic growth returns," Carroll said.

"From our perspective at Anglo American, recovery in the OECD countries, stimulated further by government spending programmes is expected to be particularly positive for platinum group metals and diamonds," she added.