Metals Markets Steel For Price Rises As Australia Pushes To Save Cultural Sites
Delays to mining projects in Western Australia could push commodity prices higher and exacerbate shortages.
3 min
SYDNEY—Rio Tinto PLC’s destruction of two ancient caves in Australia to expand an iron-ore mine could have ramifications for global commodity markets if local lawmakers intensify scrutiny of mining activities that threaten heritage sites.
Among the most controversial recommendations made by a federal-government inquiry into the destruction of the rock shelters at Juukan Gorge in Western Australia in May is a moratorium on expansions of existing mines or new pits that encroach on sites of cultural or historical significance. Even if lawmakers opt for a less hard-line approach, experts warn of potential delays to production and higher costs that could affect supply of key raw materials such as iron ore, used to make steel.
None of the recommendations handed down by the inquiry in its interim report on Wednesday are binding, but miners risk inflaming tensions with some investors who feel the industry needs to show greater sensitivity to environmental and cultural issues if they don’t accept them. They also face sensitive negotiations with indigenous groups that are the traditional owners of the land.
Metals prices have been rallying as China’s economy bounces back strongly and other major markets recover from the coronavirus crisis. Copper prices have risen to their highest level in almost eight years. Iron ore is one of the best-performing assets this year, fetching $150.75 a metric ton on Wednesday, its highest price since early 2013.
China’s unexpectedly strong appetite for these commodities has raised concerns over whether there’s enough supply, with many analysts predicting market deficits for iron ore and copper through at least the middle of next year.
Delays to mining projects in Western Australia, where companies dig up metals including copper and gold, could push commodity prices higher and exacerbate shortages already worsened by pandemic-driven disruptions to operations elsewhere. Iron ore is considered to be most at risk because Australia accounts for more than half of the world’s trade in the commodity by sea.
“This could be a watershed moment for the Western Australia mining industry and could impact Western Australia iron-ore production, and possibly other commodities, in 2021 and beyond,” Goldman Sachs said.
Already there are tensions between miners and some investors following the report into the loss of the Juukan caves, which contained a trove of artifacts that indicated they had been occupied by humans more than 46,000 years ago.
Fortescue Metals Ltd., the world’s fourth-largest iron-ore exporter by volume, rejected the idea of a voluntary moratorium on new heritage consents. “We do not believe that this is either a feasible or practical solution,” Elizabeth Gaines, Fortescue’s chief executive, said.
Fortescue said it had worked with indigenous groups to protect and avoid nearly 6,000 heritage sites threatened by its mining activities.
Miners must balance the need to replace the ore that they unearth with respecting the interests of indigenous groups. Fortescue pointed out that the iron-ore industry has been a pillar of Australia’s economy as it emerges from a first recession in 29 years.
“A moratorium would unnecessarily stall mining, infrastructure and other activities for an unknown and possibly extended period,” said Tania Constable, chief executive of Minerals Council of Australia, an industry group.
Still, many investors feel the industry needs to do more, and have pushed for leadership changes when standards fall short. Rio Tinto Chief Executive Jean-Sébastien Jacques and two other executives were ousted after several investors criticized the company’s initial response to the caves’ destruction because no one had been held accountable.
Hesta, an Australian pension fund for health-care workers, said it strongly supports the recommendation that companies with existing heritage approvals, known as Section 18 permissions, suspend related works until they can verify consent by traditional landowners.
“The inescapable findings of the inquiry are that Aboriginal heritage sites remain vulnerable to destruction,” said Debby Blakey, Hesta’s chief executive. “It would be unacceptable to investors that boards of mining companies are not actively and transparently seeking to understand their exposure to this risk.”
Kim Christie, an iron-ore analyst at Wood Mackenzie, said a near-term squeeze on commodities supply from Australia isn’t likely. The final report from the inquiry won’t be finalized until next year. Still, there is a risk of higher mining costs and delays to expansions or new mines later as miners sharpen their focus on heritage issues and consultation with traditional owners, she said.
“Certainly moving forward if there is going to be that greater level of tightness [in supply] it could support prices higher than we otherwise would have thought,” Ms Christie said.
Scrutiny will especially fall on Rio Tinto. A moratorium on new heritage consents could affect up to 12 projects that Rio Tinto has planned over the next five or so years to maintain its iron-ore production at current rates, Goldman Sachs said. That means there is a risk that Rio Tinto won’t ship 327 million tons of iron ore next year as the bank had earlier forecast.
Rio Tinto said it is reassessing its mining operations in places with identified heritage sites that could be affected over the coming two years.
“I think Rio Tinto would rather forgo a few tons than their reputation,” said Ms Christie, of Wood Mackenzie.
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Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Food prices continue to rise at a rapid pace, surprising central banks and pressuring debt-laden governments
4 min
LONDON—Fresh out of an energy crisis, Europeans are facing a food-price explosion that is changing diets and forcing consumers across the region to tighten their belts—literally.
This is happening even though inflation as a whole is falling thanks to lower energy prices, presenting a new policy challenge for governments that deployed billions in aid last year to keep businesses and households afloat through the worst energy crisis in decades.
New data on Wednesday showed inflation in the U.K. fell sharply in April as energy prices cooled, following a similar pattern around Europe and in the U.S. But food prices were 19.3% higher than a year earlier.
The continued surge in food prices has caught central bankers off guard and pressured governments that are still reeling from the cost of last year’s emergency support to come to the rescue. And it is pressuring household budgets that are also under strain from rising borrowing costs.
In France, households have cut their food purchases by more than 10% since the invasion of Ukraine, while their purchases of energy have fallen by 4.8%.
In Germany, sales of food fell 1.1% in March from the previous month, and were down 10.3% from a year earlier, the largest drop since records began in 1994. According to the Federal Information Centre for Agriculture, meat consumption was lower in 2022 than at any time since records began in 1989, although it said that might partly reflect a continuing shift toward more plant-based diets.
Food retailers’ profit margins have contracted because they can’t pass on the entire price increases from their suppliers to their customers. Markus Mosa, chief executive of the Edeka supermarket chain, told German media that the company had stopped ordering products from several large suppliers because of rocketing prices.
A survey by the U.K.’s statistics agency earlier this month found that almost three-fifths of the poorest 20% of households were cutting back on food purchases.
“This is an access problem,” said Ludovic Subran, chief economist at insurer Allianz, who previously worked at the United Nations World Food Program. “Total food production has not plummeted. This is an entitlement crisis.”
Food accounts for a much larger share of consumer spending than energy, so a smaller rise in prices has a greater impact on budgets. The U.K.’s Resolution Foundation estimates that by the summer, the cumulative rise in food bills since 2020 will have amounted to 28 billion pounds, equivalent to $34.76 billion, outstripping the rise in energy bills, estimated at £25 billion.
“The cost of living crisis isn’t ending, it is just entering a new phase,” Torsten Bell, the research group’s chief executive, wrote in a recent report.
Food isn’t the only driver of inflation. In the U.K., the core rate of inflation—which excludes food and energy—rose to 6.8% in April from 6.2% in March, its highest level since 1992. Core inflation was close to its record high in the eurozone during the same month.
Still, Bank of England Gov. Andrew Bailey told lawmakers Tuesday that food prices now constitute a “fourth shock” to inflation after the bottlenecks that jammed supply chains during the Covid-19 pandemic, the rise in energy prices that accompanied Russia’s invasion of Ukraine, and surprisingly tight labor markets.
Europe’s governments spent heavily on supporting households as energy prices soared. Now they have less room to borrow given the surge in debt since the pandemic struck in 2020.
Some governments—including those of Italy, Spain and Portugal—have cut sales taxes on food products to ease the burden on consumers. Others are leaning on food retailers to keep their prices in check. In March, the French government negotiated an agreement with leading retailers to refrain from price rises if it is possible to do so.
Retailers have also come under scrutiny in Ireland and a number of other European countries. In the U.K., lawmakers have launched an investigation into the entire food supply chain “from farm to fork.”
“Yesterday I had the food producers into Downing Street, and we’ve also been talking to the supermarkets, to the farmers, looking at every element of the supply chain and what we can do to pass on some of the reduction in costs that are coming through to consumers as fast as possible,” U.K. Treasury Chief Jeremy Hunt said during The Wall Street Journal’s CEO Council Summit in London.
The government’s Competition and Markets Authority last week said it would take a closer look at retailers.
“Given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well,” said Sarah Cardell, who heads the CMA.
Some economists expect that added scrutiny to yield concrete results, assuming retailers won’t want to tarnish their image and will lean on their suppliers to keep prices down.
“With supermarkets now more heavily under the political spotlight, we think it more likely that price momentum in the food basket slows,” said Sanjay Raja, an economist at Deutsche Bank.
It isn’t entirely clear why food prices have risen so fast for so long. In world commodity markets, which set the prices received by farmers, food prices have been falling since April 2022. But raw commodity costs are just one part of the final price. Consumers are also paying for processing, packaging, transport and distribution, and the size of the gap between the farm and the dining table is unusually wide.
The BOE’s Bailey thinks one reason for the bank having misjudged food prices is that food producers entered into longer-term but relatively expensive contracts with fertilizer, energy and other suppliers around the time of Russia’s invasion of Ukraine in their eagerness to guarantee availability at a time of uncertainty.
But as the pressures being placed on retailers suggest, some policy makers suspect that an increase in profit margins may also have played a role. Speaking to lawmakers, Bailey was wary of placing any blame on food suppliers.
“It’s a story about rebuilding margins that were squeezed in the early part of last year,” he said.
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
