From mines around the world to the dependent rail and port projects, the changing global economics commodity cycle suggests a downer “Bear” market for projects that add to global capacity and output.
This down cycle could last from a short 2 to 3 years OR AS LONG AS 7 or more years. Strategic Planners to to rethink their now outdated assumptions from supporting logistics projects in diverse places like Mozambique, Botswana, Mongolia, Brazil, and even in the Canadian/Alaska Yukon region.
What ever capital plans for building the supporting ports and railways they had developed by big engineering companies — the underlying due diligence economic assumptions are now likely “under water” so to speak.
Billions and billions of proposed dollars in drawing board completed project engineering can no longer pass an economic feasibility test for recovery of he rail project capital P&I.
Instead these industry planners should brace themselves for at least another two years of shrinking budgets and outlays. The earliest signs of a “subdued” resource recovery might not be until early in 2018 say some experts.
But even this prediction might be too bullish. Why? Because metal prices have already fallen 12% further than they did during the bear market in the 1990s. In that bear market, capex only recovered to its pre-crash (1997) level after seven years (2004),” according to Mark Fellows.
Mark Fellows, director of consulting for a mining research firm reports that “while sustaining capital expenditure is down 13% since the peak in 2012, capital expenditure on new developments has been even harder hit.” “Spending on brownfield expansions is down 25% while greenfield project expenditure has plummeted by nearly one third” on a global basis.
Mr Fellows concludes this by comparing the current 2013-2015 downturn to the previous bear market in mining which ran from 1997 to 2002. He therefore argues that the current witnesses global capex cutbacks are far from over.
The report is published by SNL Metals and Mining. DOLLARS OF PROJECT EXPANSION PLANS AT RISK
The report finds that total capital spending across all mining companies has declined by around $70 billion since the 2012 peak to just over $150 billion forecast for this year. As one business case example, the project investment at BHP Billiton this year will be $10 billion below its 2013 peak. The world’s number one miner only has four projects in the works, two of which are almost complete, compared to 18 mine and infrastructure developments just two years ago.
In a Mining.com press story by Frik Els on 21 September 2015 titled: “This is the scariest mining chart you’ll see today”, the investor alert numbers are brought out visually.
This is another piece of economic trend evidence in my blog’s strategic theme of changing times for traffic that feeds the dreams of massive new rail freight projects.
“a Bridge Too Far” analysis?
Only the strongest as low cost per ton-kilometer cost new rail projects might be competitive.
Too many rail projects on the drawing boards are simply under designed as to the necessary competitive productivity to prosper as investment grade scenarios. Trains would be too small because they often lack big train technology design features of the most successful resource rail carriers. Axle loads too small. Train lengths too short. Clearances too shallow. Net to tare wagon rates are too low
Too many are now ill advised rail schemes. “Schemes” in North American business language generally means a buyer beware concept plan”.
In Africa alone, I estimate that as many as two thirds of “announced” rail line freight projects may be too risky to build as currently designed around old market demand and old post World War-2 rail engineering standards. That could mean as much as $25 to $34 billion of “schemes” seriously require a second due diligence look just in Africa.
Africa is not alone. The billions in proposed rail engineering in the Canadian Yukon/Alaska region also need serious market demand re-examination. If not by the project sponsors, then certainly by the investors they will approach. Brazil, Mongolia, Swaziland, Senegal — all of their rail design and expected market traffic assumptions need serious review for their current planning.
For more, log onto Mining.com
Chart Sources: SNL Metals & Mining