Friday, October 24, 2008

Mining and the Economy

The financial situation in the US right now is dire and on the edge but it now has less to do with Fanny Mae, Freddie Mac and the rest of the banks than most would believe. Sure that situation sparked everything but now that metal prices have been in a free fall for the last six weeks, this situation is now effecting more than the greed on Wall Street and the pocket book of certain politicians. It is now hitting the invisible spine of capitalism. Nobody likes to look at mining in a positive light, especially when it is currently the fade to bash it for environmental reason. Mining is an easy target because it does dramatically impact the visual environment. But the truth behind all of the attacks is that mining is what makes the modern world possible. Every single modern convenience requires metals, ceramics or petroleum products. The world saving, Hybrid Cars have batteries which are made possible by metals. So when mining goes to a stand still, which it is currently moving toward, the rest of the economy will follow.

Mining companies have stop expanding and if the metal prices continue to fall they will limit production in an attempt to lower inventory. This means lay-offs of some high paid hourly workers. All of this will have a ripple effect through out the economy. Usually this will be the leading edge of a down turn like it was in 1998 and 1999. Even without 911 the economy was heading down. The recovery that followed was the result of several factors but what was never really talked about was the metals market sky-rocketing. Copper alone was a strong indicator as it soared to +$4 a pound. Gold, platinum, silver all enjoyed high prices which sparked a huge boom in mining companies and sites reopening. All of these employed a large work force and because there was (and still is) a limit of qualified workers their wages increased. Underground miners in some cases can earn 6 digit wages between hourly wages, overtime and bonuses.

It is my belief, this current economic downturn will not fully recover until the mining companies regain their footing. So what the metal prices closely and act accordingly.