The outlook for base and industrial metals in 2013, I believe, will be a continuation of margin improvement, purely because companies are pushing back on service providers. I do believe commodity prices will remain quite strong. Also, I still believe that copper prices will hold up much stronger than other base metal prices, such as aluminum. Hence our portfolio continues to be weighted significantly more towards copper companies, specifically companies that have significant volume growth. What I am looking for in equities in 2013, first of all, are companies that can push back on the service providers and hence increase their margins. I am looking for companies that have volume growth associated with their various products. And I am looking for companies that clearly have upside exploration activity.
Why do I like copper so much? Copper is a very unique commodity relative to other base and industrial metals. One reason is that its supply is significantly more constrained. Secondly, its inventories, whether they are in warehouses in London or warehouses in Asia, are significantly lower. By contrast, production volumes for commodities such as aluminum are consistently increasing, specifically in places like China; and volume inventories here in the U.S., Europe, and China are extremely high. I like copper purely because the supply dynamics are much more constrained than the supply dynamics for other metals, like aluminum. To put it in context, I think supply in copper concentrate in 2013 will be somewhere around 4%. I do think that is a high number potentially on the back of potential strike actions that I anticipate, while supply growth in aluminum could be much closer to 6% or 7%, and demand for that could be as low as 3%, while copper demand I think could be much closer to around about 6% in 2013.
TENSIONS IN SOUTH AFRICA
Mining strikes in 2012 was clearly a big theme, specifically in South Africa, where we saw at one stage nearly a 100,000 miners on strike. Why was it important in South Africa? First of all, South Africa is the biggest platinum producer, the second-biggest palladium producer, one of the world's biggest coal producers, as well as one of the world's biggest gold producers, as well as ferrochrome and many other commodities. I do think the strikes in 2012 in South Africa will continue into 2013, driven by different events than we saw in 2012. I do think that there is a real risk that these strikes could spill out into other countries. What we have seen in South Africa has been noted by international union members and international union leaders, and I think that they will take note of this. In 2013, labor negotiations are likely to be quite complex and difficult.
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