Transcript epge.fgv.br

The challenges of mining
Rio de Janeiro
August 16, 2012
1
Agenda
1
2
A successful case
2
Metals price behavior
3
Populist times
A successful case
1
3
2
Metals price behavior
3
Populist times
Vale, a successful case of privatization
Annual avg
in US$ million¹
State-owned
1943-1997
(A)
Investment
Revenue
Net income
Dividend
¹ nominal values deflated by the US CPI
4
Private sector owned
1998-2011
(B)
(B)/(A)
667
8,248
12.4x
1,726
21,126
12.2x
270
7,834
29.0x
72
2,041
28.3x
Fifteen years ago Vale was a typical Brazilian
export-oriented company
Vale in 1997
Belgium
USA
China
Brazil
Legend
Operations
Offices
Exploration offices
Headquarter
Stock Exchange
5
Japan
A global reach
Vale in 2012
Hong Kong
Stock Exchange
6
Investment to meet the long-term growth
dynamics of emerging economies
■ Investment-based demand products for housing
and infrastructure.
■ Consumption-based demand products for
durable goods and proteins.
7
Success was not due to chance or to cyclical
factors
Real metals price index¹
Real terms
300
250
index
200
150
100
12
20
10
20
09
20
08
20
06
05
20
04
20
02
20
01
20
00
20
98
20
97
19
19
96
94
19
19
93
19
92
19
90
19
89
19
88
19
86
19
85
84
19
19
82
81
19
19
19
80
50
¹ The IMF metals price index is based on a basket of metals (copper, aluminum, iron ore, tin, nickel, zinc, lead, and uranium).
Sources: IMF and Vale
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After plunging from 1980 to 2000, real iron ore
prices are trending upward
Iron ore real prices
US$ per metric ton
110
100
Real prices
Long-term trend
90
US$ per metric ton
80
70
60
50
40
30
20
1900
9
1910
1920
1930
¹ Long-term trend according to Hodrick-Prescott filter
Sources: Vale and USGS
1940
1950
1960
1970
1980
1990
2000
2010
A successful case
1
2
3
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Metals price behavior
Populist times
Macro factors have a large influence on
commodity prices
Price variance associated to macro factors
1979-2011
%
¹ US
Source: IMF
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Food
45-50
Oil
85-90
Natural gas¹
17-20
Base metals
60-65
Commodity price co-movement
Nickel
Copper
Aluminum
Iron ore
Coal
Oil
Corn
Soybeans
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Copper
Aluminum
Iron ore
Coal
Oil
Corn
Soybeans
Wheat
0.54
0.53
0.33
0.18
0.34
0.22
0.22
0.15
0.72
0.28
0.37
0.63
0.23
0.27
0.27
0.26
0.45
0.56
0.29
0.29
0.20
0.19
0.29
0.18
0.20
0.32
0.50
0.24
0.36
0.24
0.29
0.31
0.21
0.76
0.53
0.57
Metals prices are associated to industrial
production
Global IP
250
115
110
200
105
150
100
index
index
Metals price
index¹
95
100
90
50
85
0
2000
80
2001
2002
2003
2005
2006
2007
2008
2010
2011
¹ The IMF metals price index is based on a basket of metals (copper, aluminum, iron ore, tin, nickel, zinc, lead, and uranium).
Sources: IMF and JPMorgan
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Industrial production is the most volatile
component of the GDP, imparting a volatile
environment to base metals prices
Global IP growth volatility¹
16
12
8
4
0
1972
1977
1982
1987
1992
¹ 24-month rolling standard deviation of %3m, saar monthly IP change
Source: JP Morgan
14
1997
2002
2007
2012
The strong EM-led recovery in IP growth has
generated metal price increases much greater
than in the recoveries from past recessions
Global industrial production
% 3mma, saar¹
Metal prices in recoveries from
past global recessions¹
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Recovery from the Great Recession²
10
Average of last 5 recoveries
5
95%
0
Aluminum
5%
-5
-10
232%
-15
Copper
5%
-20
-25
229%
-30
Nickel
-35
Jul-08
15
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
13%
¹ Global recessions: 1974, 1981-82, 1990-91, 1998 and 2001.
² Percentage change from last trough to recent peak (Al: 2,785$/t on 3/5/11; Cu: 10,148$/t on 14/2/11; Ni: 29,030$/t on 21/2/11)
Sources: Vale and JPMorgan
Commodity prices tend to be negatively
correlated with shocks to the value of the US
dollar
Correlation between US NEER and metals prices¹
94%
96%
Iron ore
Nickel
92%
95%
Copper
Aluminum
¹ Correlation between rolling two-year standard deviations of monthly changes in US NEER and commodity prices; Jan/10 – May/12.
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Changes in financial markets instability tend to
be negatively correlated with base metals prices
Metals prices and the VIX
5%
0%
-5%
-10%
-15%
-20%
Ni
Two-year rolling correlation between daily changes in the VIX and base metals prices
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2011
2010
2009
2008
2007
-25%
2012
Cu
Al
Nickel and copper prices are highly volatile
Daily returns
%
Nickel
18
Sources: DIRI/DETM and Bloomberg
Copper
As well as iron ore prices
Daily returns
%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
2008
19
2009
2010
2011
2012
Nickel real prices cycles1
60,000
55,000
50,000
US$ per metric ton
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1988
1990
1992
1994
1996
Shaded areas represent periods of downswings.
¹ Real prices, base year = 2012.
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1998
2000
2002
2004
2006
2008
2010
2012
Copper real prices cycles1
10,500
9,500
US$ per metric ton
8,500
7,500
6,500
5,500
4,500
3,500
2,500
1,500
1986
1988
1990
1992
1994
1996
Shaded areas represent periods of downswings.
¹ Real prices, base year = 2012.
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1998
2000
2002
2004
2006
2008
2010
2012
Real metals price cycles
Number of
peak-totrough
episodes
Number of
trough-topeak
episodes
Peak-totrough
average
length¹
Trough-topeak
average
length¹
Average
cycle
length¹
Length of
the latest
period ¹
Copper
9
8
15.2
19.6
34.8
16
Nickel
7
6
22.5
21.0
43.5
16
Commodity
¹ months
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The behavior of metals prices shows some similarities
to stock prices: difficult to predict, fat tails and volatility
clustering
1987-2012
2002-2012
Nickel
Copper
S&P 500
Nickel
Copper
S&P 500
Cumulative return
548%
462%
456%
165%
426%
21%
Mean
0.06%
0.04%
0.03%
0.07%
0.08%
0.02%
Standard deviation
2.53%
1.84%
1.21%
2.52%
1.90%
1.36%
Kurtosis
105.88
5.90
20.72
4.65
2.62
8.53
Autocorrelation in returns
-0.01
-0.09
-0.05
0.02
-0.05
-0.10
Autocorrelation in squared returns
0.02
0.27
0.16
0.18
0.20
0.20
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A successful case
1
2
3
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Metals price behavior
Populist times
Natural resources nationalism
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Some fallacies about commodities
■ A gift from God.
■ The Dutch disease.
■ The natural resources curse.
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Vale - R&D investment – 2007- 2011
US$ 5.7 bilion
2007
2008
2009
2010
2011
0
200
400
600
800
1,000
US$ million
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1,200
1,400
1,600
1,800
Global mining capex
US$ billion¹
Real prices
160
120
80
28
¹ 2009 prices.
Source: Vale estimates.
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
40
Despite the restrictions, natural resources have contributed
to increase total productivity in Latin America
Relative TFP (US=1.0)
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Source: “On the evolution of TFP in Latin America”, P. Ferreira, S. Pessôa and F. Veloso , Economic Inquiry, 2012.
Is there a natural resources curse?
Commodities and economic development
USA
(A) Commodity¹ exports - US$ billion
Australia Canada
New
Norway Chile Brazil
Zealand
493.4
215.3
192.9
18.4
120.1
57.4 152.7
(B) GDP - US$ billion
15,094
1,489
1,738
162
484
248 2,479
(A) / Total exports - %
33.3
80.0
41.7
49.7
75.5
70.9
59.6
3.3
14.5
11.1
11.4
24.8
23.1
6.1
100.0
104.2
87.7
67.5
123.8
30.1
23.1
2.6
3.4
2.6
2.7
2.5
5.2
3.2
Global
3.4
EM
5.1
DM
2.2
(A) / (B) - %
Real GDP per capita relative to the US, 2009
Average real GDP growth over the last 20 years
Average real GDP growth over the last 20 years
¹ 2011 values
Sources: Vale, Haver Analytics, IMF, Penn World Tables, MIDC-SECEX, StatCan and Statistics Norway,
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