In 2017, the global mining market entered a new cycle of development. On the demand side, growth exceeded expectations, while on the supply side, constraints intensified, leading to a worsening shortage of most commodities. This, in turn, drove widespread increases in market prices, significantly improved mining companies’ operating performance, and boosted investor confidence in capital markets. During the same period, mining companies became more optimistic about investment prospects, and global exploration spending rebounded from its bottom. However, institutional investors grew more cautious in their future outlook, and their enthusiasm for investing in the sector declined somewhat. Looking ahead to 2018, under the interplay of adjusted supply-and-demand factors, the global mining market is expected to remain in a tight balance. Overall, the market situation is likely to improve slightly compared to 2017. Yet, as the phase of catch-up price increases comes to an end and sufficient underlying momentum begins to wane, prices of most metal minerals will likely remain volatile at high levels, with some individual commodities experiencing minor corrections. Meanwhile, as industry conditions and the external environment evolve, the primary challenges facing mining companies in 2018 are also set to shift.
 
Stimulated by the steady recovery in prices, the production growth of most global metal varieties has accelerated since 2017. According to statistics from the World Bureau of Metal Statistics (WBMS), in the first three quarters of 2017, among the major metals and minerals tracked, only the output of nickel and silver (minerals) declined year-on-year; zinc production remained roughly flat; copper and gold (minerals) saw a slight increase; while lead, molybdenum (minerals), and tin experienced significant growth. In addition, during the first three quarters, the combined iron ore production of the four major iron ore producers—VALE, BHP, RIO, and FMG—totaled 801 million tons (exceeding half of global production), representing a 1.82% increase over the same period in 2016. On the domestic supply side, data from the National Bureau of Statistics show that, in the first 10 months, the cumulative output of China’s ten non-ferrous metals reached 45.21 million tons, up 3.4% year-on-year; cumulative iron ore production totaled 1.082 billion tons (raw ore), an increase of 6.0% year-on-year; and cumulative crude steel production reached 709.5 million tons, up 6.1% year-on-year.

 
Data source: WMS, Minmetals Economic Research Institute
Supported by the accelerating global economic recovery and the phased stabilization of China’s economy, consumption of most metal varieties worldwide saw steady growth in 2017. According to statistics from the International Metal Statistics Bureau, in the first three quarters of 2017, cumulative global consumption of lead, aluminum, zinc, and copper all increased to varying degrees compared with the same period in 2016; only nickel and tin saw a slight decline in consumption. In addition, data from the World Steel Association show that, for the first 10 months combined, global demand for iron ore rose by 1.35% year-on-year, with China’s iron ore demand increasing by 2.54% over the same period. As for domestic demand for base metals, in the first three quarters combined, demand for aluminum and lead grew relatively significantly, while demand for copper and zinc remained largely unchanged. By contrast, demand for nickel and tin contracted notably. Thus, it is evident that in 2017, China’s demand for copper, aluminum, lead, and iron ore outperformed the global market, whereas demand for zinc, nickel, and tin performed relatively weaker.

Data sources: WMS, World Steel Association, and the Metallurgical Economic Research Institute of China Minmetals.
However, it’s worth noting that, from a quarterly perspective, both internationally and domestically, the momentum of growth in demand and supply for key products has weakened since the second half of the year.
Under the dual influence of supply and demand, since 2017, the degree of shortage for most global metal products has widened compared to 2016. Among base metals, in the first three quarters of 2017, the shortages in the aluminum, zinc, and lead markets significantly intensified, while the shortages in the copper and tin markets eased slightly. Looking at quarterly market balance changes, shortages in aluminum, lead, zinc, and nickel continued to worsen, whereas shortages in the copper and tin markets noticeably eased after the second half of the year. Moreover, due to a significant decline in global production of bauxite, zinc concentrate, lead concentrate, and nickel concentrate during the first three quarters, the market supply gaps for these commodities continued to widen.

 
Data sources: Annual reports of various companies, various specialized institutions, and the Metallurgical Industry Economic Research Institute.
Due to the ongoing shortage in major commodity markets, social inventories of related commodities have also declined accordingly since 2017. As of November 30, 2017, among the three major global metal exchanges (LME, COMEX, and SHFE), with the exception of tin inventory, which increased from the beginning of the year, inventories of the other five metals all showed varying degrees of decline. Among these, aluminum, lead, and zinc inventories have all fallen to their lowest levels in the past five years, while nickel inventories have reached their lowest point in the past three years. As for precious metals, combined gold inventories at the two major exchanges (COMEX and SHFE) have also been on a gradual downward trend over the past two years, whereas silver inventories have seen a significant increase this year. Furthermore, looking at domestic port inventories of major black-metal minerals, nickel ore inventories have experienced the most pronounced decline so far this year, while iron ore inventories as a whole continue to rise.

 
Data source: Wind, Minmetals Research Institute of Economics
 
Starting from the fourth quarter of 2016, international market prices for metal and mineral commodities began to rebound across the board. As we entered 2017, prices of major products continued to fluctuate and rise, becoming the main driver behind the global surge in commodity prices. As of the end of November, the CRB spot composite price index had risen cumulatively by 1.5% year-to-date, with the metals price index posting an increase of as much as 8.89%. On a mean basis, the CRB spot composite price average for the first 11 months rose by 6.95% compared to the 2016 average, with the metals price index averaging an impressive increase of 25.55%. Moreover, while global commodity prices generally showed signs of weakening in the third quarter, metal prices remained strong, with several metal product prices continuously hitting new highs not seen in the past three years. However, starting from the fourth quarter, prices of some metal commodities began to experience volatile adjustments.

 
Data source: Wind, Minmetals Research Institute of Economics
As for major commodities, the year-to-date cumulative price increases of metals such as copper, aluminum, zinc, and lead have all exceeded 20%, while the price increases of nickel and gold have also surpassed 10%. Only tin and iron ore saw their prices decline slightly by the end of November compared to the beginning of the year; however, their average prices for the year still rose by 11.96% and 21.91%, respectively, over last year’s full-year averages. Whether measured by average price increase or year-to-date gain, since 2017, the prices of copper, aluminum, zinc, and lead have all risen by more than 20%, with absolute prices rebounding to their highest levels in the past three to four years—making these the strongest-performing commodities. Moreover, driven by policies such as “capacity reduction” in China’s smelting sector, environmental crackdowns, and efforts to crack down on “strip steel,” domestic steel prices have continued to rise steadily since 2017, spurring a corresponding upward trend in international markets. According to data from the China Iron and Steel Association and CRU, as of the end of November, the average prices of domestic and international steel had risen by 41.26% and 27.66%, respectively. Currently, both domestic and international steel prices remain at their highest levels in the past five years.

 
Data source: Wind, Minmetals Research Institute of Economics
Since 2017, prices of minor metals related to new energy and new materials have also surged. Among them, the price of lithium carbonate (Shanghai) rose from 124,500 yuan per ton at the end of 2016 to 168,000 yuan per ton by the end of November 2017, an increase of nearly 40%. The price of electrolytic cobalt (Shanghai) climbed from 268,000 yuan per ton to 482,000 yuan per ton, representing an increase of nearly 80%. In addition, prices of tungsten and rare earth elements have also risen by around 30% to 40% since 2017. Prices of chromium and molybdenum have seen relatively lower increases. Although the price of electrolytic manganese fell sharply by the end of November compared to the end of 2016, its average price still rose by 7.34%.

 
Data source: Wind, Minmetals Research Institute of Economics
 
Supported by factors such as the rebound in commodity prices, reduced production costs, and optimized asset structures and management, most global mining companies turned profitable in 2016. Thanks to the continued recovery in commodity prices, the operating performance of international mining companies further improved in 2017. In the first half of the year, the combined revenue of the world’s top ten mining companies (in the metals sector) exceeded 60% of their total revenue for the entire previous year. In the first three quarters, among the ten leading mining companies, six that have already released relevant operational data saw their combined revenue increase by 24.3% compared to the same period in 2016, with their total revenue already surpassing 80% of last year’s full-year figure. In terms of profits, the combined net profit of the top ten mining companies in the first half of the year reached US$16.49 billion, nearly 80% of their total net profit for the entire previous year. For the first three quarters, the six of the top ten mining companies that have disclosed relevant financial data recorded a combined net profit increase of 74.4% over the same period in 2016—a growth rate that doubled from the first half of the year—and their total net profit has already exceeded last year’s full-year level. Given that major commodity prices have remained persistently high and volatile since the fourth quarter, it is expected that global mining companies will experience a long-awaited surge in profits in 2017.

 
Data sources: Annual reports of various companies, Bloomberg, and the China Minmetals Research Institute.
The market situation continues to improve, largely correcting the previously pessimistic investment plans of mining companies. In the first half of the year, the total capital expenditure of the top ten mining companies amounted to US$11.377 billion, a decrease of 18.39% compared to the first half of 2016. For the first three quarters combined, the six of the top ten mining companies that have already released relevant operational data saw their aggregate capital expenditure decline by 24.1% compared to the same period in 2016—a narrower decline than in the first half of the year. According to statistical data from major companies, following the record low in global mining companies’ capital expenditure in 2016—the lowest level since 2005—spending is expected to continue declining in 2017. It is projected that in 2017, the total capital expenditure of the top ten mining companies will be around US$25 billion, representing a decline of approximately 10%, significantly narrower than the 38.7% drop recorded in 2016. Moreover, given that several companies have recently launched or are considering launching expanded investment plans since the second half of the year, global mining sector capital expenditure is expected to turn upward in 2018 after five consecutive years of contraction.
 
Data sources: Annual reports of various companies, Bloomberg, and the China Minmetals Research Institute.
With the rebound in mineral prices and improved corporate performance, investor confidence in mining assets on the capital markets has continued to recover. Data shows that as of the end of November, among the world’s top ten mining companies, the stock prices of Vale, Anglo American, and Glencore have more than quadrupled compared to early 2016; Freeport-McMoRan and Teck Resources have seen stock price increases of around three times; BHP, Rio Tinto, and Grupo México have also experienced stock price growth approaching double; only Canadian Gold has shown relatively stable stock price fluctuations.
 
Data source: Wind, Minmetals Research Institute of Economics
 
After five consecutive years of contraction, global exploration spending in the metals sector rebounded in 2017. According to data compiled by S&P Global Market Intelligence, total global exploration spending in 2016 reached US$7.3 billion—the lowest level since 2006. However, as commodity prices continued to recover and corporate performance improved substantially, mining companies gradually became more optimistic about exploration spending in 2017. Statistics for the first three quarters show that, compared to their initial budgets, the 1,706 mining companies included in the survey had already cumulatively increased their exploration spending by US$1.237 billion in 2017. In contrast, actual exploration spending for the entire year of 2016 had been cut by US$889 million relative to the original budget. Among these companies, those with the largest increases in exploration spending included Antofagasta, Vale, Barrick, and Fresnillo. S&P forecasts that global exploration spending in 2017 will reach US$8.4 billion, representing an increase of roughly 15% over 2016 levels. Moreover, given the correlation between exploration spending and the industrial metals price index, S&P expects the growth rate of global exploration spending to further accelerate in 2018.
 
Data source: S&P Global Market Intelligence, Minmetals Research Institute
The non-ferrous metals sector is a key focus of global non-energy exploration investment, with gold remaining the most closely watched asset. S&P forecasts that global exploration spending in the non-ferrous metals sector will reach US$7.95 billion in 2017, representing a 14.4% increase over 2016 levels. Of this total, exploration spending in the gold sector is expected to amount to US$4.94 billion—a rise of more than 20% compared to 2016—and accounting for over half of the industry’s total investment. Copper ranks second among the non-ferrous metals sectors in terms of exploration spending, with an estimated investment volume of US$1.65 billion in 2017, or one-fifth of the industry’s total expenditure. In addition, exploration spending on base metals—including copper—was projected at US$2.383 billion in 2017, up 10.9% from 2016. Meanwhile, exploration investments in diamonds, uranium, and platinum-group metals all saw varying degrees of decline compared to 2016 levels.

Data source: S&P Global Market Intelligence, Minmetals Research Institute
 
After reaching a new high in 2016—marking the largest-ever four-year total for global mining M&A deals (including equity investments)—the market has cooled somewhat since 2017. According to Bloomberg data, as of the end of November, the total value of M&A deals in the global mining sector reached US$38.01 billion, slightly more than half the level recorded in 2016, and is expected to approach US$40 billion for the full year. Among the 74 individual deals valued at over US$100 million that have already taken place, only five involved buyers from among the world’s top ten mining companies (two by Glencore, three by Canadian Gold, and one by Newmont Mining). Nevertheless, 2017 saw vigorous M&A activity in the global coal development sector, with the cumulative deal value for the first 11 months reaching US$22.27 billion—exceeding the combined total of the previous two years. The strategic realignment of major mining companies (such as Rio Tinto) and sustained high coal prices were the primary drivers behind the sharp surge in M&A activity in this sector in 2017.

 
Data source: Bloomberg, Minmetals Research Institute
Due to the unique characteristics of the commodity, gold has consistently been a hot spot for mergers and acquisitions in the global mining sector. According to Bloomberg statistics, over the past decade, the total value of M&A deals involving gold accounted for one-third of the entire global mining industry. Notably, this proportion once approached 50% in 2010. In 2017, gold remained the largest single commodity driving M&A activity in the global mining sector. As of the end of November, the cumulative value of gold-related M&A deals worldwide reached US$11.94 billion, representing 31.25% of the total M&A activity in the mining industry during the same period.

 
Data source: Bloomberg, Minmetals Research Institute
Chinese-funded enterprises are currently the most active and prominent participants in the international mining market. In 2016, Chinese mining companies and institutional investors—represented by Luoyang Molybdenum (which acquired the Tenke copper-cobalt mine from Freeport and Anglo American’s niobium and phosphate assets in Brazil) and Bohai Huamei Fund (which acquired a 24% stake in the Tenke copper-cobalt project held by Lundin Mining)—frequently made acquisitions, serving as the key driving force behind the rebound in M&A deals in the international mining market. This trend continued into 2017. As of the end of November, statistical data showed that among mining M&A deals valued at over US$100 million, one-third of the buyers were companies with Chinese capital backgrounds; among the top 20 largest deals by value, eight involved Chinese buyers.

Data source: Bloomberg, Minmetals Research Institute
 
Despite a broad-based rally in commodity markets in 2017, institutions expect weak price growth in 2018, with diverging trends among different commodities. As of the end of November, Bloomberg’s statistical analysis of international financial institutions’ commodity price forecasts since the third quarter shows that, for 2018, copper, aluminum, nickel, gold, silver, and cobalt are viewed favorably, while lead, zinc, tin, molybdenum, and iron ore are less optimistic. In terms of prices, the average international market price for copper in 2018 is forecast to be $6,860 per ton, for aluminum $2,010 per ton, for zinc $3,170 per ton, for lead $2,505 per ton, for nickel $11,460 per ton, for gold $1,290 per ounce, for cobalt $57,300 per ton, and for iron ore (Platts, 62% grade) $68.7 per ton. Among these, the price of iron ore in 2018 is expected to decline by nearly 5% compared to 2017, while the price of aluminum is projected to rise by close to 2%.
 
Data source: Bloomberg, Minmetals Research Institute
From a medium-term market perspective, international institutions are relatively bullish on cobalt, aluminum, gold, silver, and nickel, generally neutral on copper and tin, and bearish on iron ore, zinc, lead, and molybdenum. According to statistical data, iron ore prices are expected to fall to $60 per ton in 2020, while zinc prices will drop to $2,900 per ton. Lead and molybdenum prices are forecast at $2,450 per ton and $17,400 per ton, respectively. Meanwhile, cobalt prices are projected at $70,500 per ton, aluminum prices at $2,180 per ton, gold prices at $1,351 per ounce, and nickel prices at $11,865 per ton. Moreover, compared with mid-year price forecasts, expectations for the third quarter and beyond have generally been lowered, reflecting a growing cautious outlook among international institutions regarding future market conditions.
Compared to institutional investors, mining companies are consistently bullish on the future copper market. For example, in its fiscal year 2017 report released in August, BHP believed that, due to declining ore grades, rising input costs, water resource constraints, and the increasing scarcity of high-quality projects yet to be developed, copper prices still have room to rise by as much as 50% before 2035. Meanwhile, in a speech, the CEO of Freeport-McMoRan predicted that copper prices would rebound to above US$8,000 per tonne in the future. Codelco, the world’s largest copper producer, took an even more optimistic stance in its latest market outlook, forecasting that copper prices could surpass US$10,000 per tonne in the medium term. Among major copper producers, only Mexico’s Cobre de México adopted a relatively more conservative forecast, predicting that copper prices would remain above US$6,500 per tonne after 2019. As a result, despite ongoing pressure to keep overall investment levels steady or even reduce them, major mining companies have begun ramping up their investments in copper resource development. Of the world’s top ten mining companies, seven have already taken relevant steps since last year.

Data source: Bloomberg, Minmetals Research Institute
 
After several consecutive years of sluggishness and adjustment, the global mining market showed signs of recovery in 2016. Since entering 2017, prices of major commodities have continued to rise unabated, with some individual commodity prices repeatedly hitting new highs since the last adjustment. Mining companies’ operations have significantly improved, and their attractiveness to capital markets has been restored. As a result, the global mining industry has entered a new round of development cycle.
The launch of this commodity cycle is primarily supported by three major factors:
(1) On the demand side, over the past two years, the global economy has gradually picked up momentum, driving metal and mineral product demand to grow more strongly than expected. In its latest report released in October, the IMF once again raised its forecast for global economic growth in 2017 to 3.6%, an acceleration of 0.4 percentage points compared to 2016. Among them, the U.S. economy, the European economy, and the Japanese economy all posted actual growth in the first three quarters that exceeded initial market expectations at the beginning of the year. Moreover, China’s GDP grew by 6.9% in the first three quarters—significantly better than the market’s initial forecast at the start of the year. The stronger-than-expected global economic growth not only boosted metal and mineral product demand beyond earlier projections but also further raised market expectations for future demand.
(2) On the supply side, as large-scale mines deplete their resources and ore grades decline, coupled with insufficient investment over the past several years that has left a shortage of follow-up projects, some products are experiencing a sharp and dramatic tightening in supply. Meanwhile, China’s ongoing policy of supply-side reform continues to tighten constraints on domestic supplies of metal ores, exerting significant pressure on global markets. Moreover, over the past year, the global mining sector has faced continuous disruptions at the production end—factors such as worker strikes, new government policies on mining investment, and increasingly stringent environmental regulations in various regions have significantly multiplied, further exacerbating global supply-side tensions.
(3) In other aspects, factors such as the continued release of policy expectation effects following Trump’s assumption of office, the rebound in energy prices, the rigid rise in labor costs, increased environmental protection expenditures driving up corporate resource development costs, the sustained decline of the U.S. dollar index from its peak, and the speculative hype fueled by domestic and foreign funds—all have contributed to the rapid rise in commodity prices this round.
Looking ahead to 2018, the support that the above-mentioned factors have been providing to the market will begin to change:
(1) On the demand side, global economic growth is expected to further accelerate to 3.8% in 2018. Among them, the U.S. economy is forecast to perform particularly well, supported by the implementation of Trump’s tax reform policies. Meanwhile, emerging market countries, after undergoing adjustments in major economies, will also see an overall acceleration in growth. Guided by a new development philosophy, China’s economy may experience a mild correction in 2018; in particular, the continued slowdown in investment growth is likely to impose certain constraints on the expansion of demand for metal and mineral products, though the extent of this impact is expected to be relatively limited. At the same time, it is anticipated that the launch of a new round of investment in developed countries and emerging markets will partially offset the reduction in global demand for metal and mineral products caused by China’s economic growth slowdown.
(2) On the supply side, over the past few years, global mining industries have continuously cut capital expenditures, with more than half of these cuts aimed at sustaining normal production operations. As a result, new capacity additions on the supply side in 2018 were extremely limited. Meanwhile, structural reforms on the supply side continue to deepen, and with greater emphasis on green development following the 19th National Congress, constraints on China’s domestic metal mineral supply are likely to intensify further. However, as the adoption of artificial intelligence in global mine development accelerates, the period of concentrated labor negotiations comes to an end, and new mining and environmental policies in some developing countries transition smoothly, unexpected disruptions to mine production in the future will also be significantly reduced.
(3) In other aspects, the widening divergence between market prices and production costs has weakened the latter’s support; capital repatriation and the Federal Reserve’s interest-rate hikes have triggered a temporary strengthening of the U.S. dollar, putting downward pressure on future commodity prices. Commodity prices have already rebounded to new highs seen in recent years, significantly increasing the risk of financial speculation and potentially leading to a cooling of the market. Moreover, with the tax reform now fully implemented, the policy benefits from the Trump administration are largely exhausted, and market expectations are poised for a shift between bullish and bearish views.
Taking into account the changes in the three major sectors mentioned above, the mining market as a whole is expected to show some improvement in 2018 compared to 2017. However, as the phase of catch-up price increases comes to an end and there is a lack of sufficient momentum to sustain further gains, prices of most metal minerals will likely remain volatile at high levels, with prices of certain commodities possibly experiencing slight corrections. Among representative commodities, tight supply and demand conditions will keep the copper market in a state of tight balance, causing prices to continue fluctuating at elevated levels. Considering inventory pressures and a slowdown in domestic investment, iron ore prices are unlikely to be optimistic; yet, as large mining companies have largely completed the ramp-up of new production capacity, downward room for price declines will also be limited. Meanwhile, with the rapid growth of new-energy vehicles, limited capacity expansion on the supply side of cobalt and lithium means that market prices are poised to rise further.
With changes in industry conditions and the external environment, in 2018 the primary challenges facing mining companies will no longer be centered on issues such as balance-sheet repair, cost control, and management transparency. Instead, the key focus will shift to accelerating the adoption of digitalization and intelligent technologies in resource development, leveraging information and networking technologies to enhance production management, and using these initiatives to achieve sustained improvements in productivity, cost advantages, and operational excellence. In addition, cash-flow management, ensuring energy supply security, managing regional legal and regulatory risks, and exploring alternatives for resource utilization will continue to be critical areas of attention for mining companies in their operations.