ILMA Compoundings April 2018 - 44

in January," and "the unemployment
rate was 4.1 percent for the fourth
consecutive month," according to
the January 2018 Bureau of Labor
Statistics news release.
Optimism abounds with a healthy
stock market and near-capacity
employment, but the stock market
numbers and overall job growth
are only part of the equation when
it comes to what makes a healthy
mining industry. The January 2018
news release also indicates that
"employment continued to trend up
in construction, food services and
drinking places, health care, and manufacturing," but "employment in other
major industries, including mining ...
changed little over the month."
While this is better than the losses and
flat numbers seen in 2016 and before,
the numbers depict an industry still in
recovery after the Great Recession.

The Effects of
Commodity Prices
Matthew McGinnis, director of
Commercial Development at Daubert
Chemical Co. Inc., regularly monitors
commodity data related to the mining
industry. He said "the market prices for
various commodities will dictate the
level of mining activity, and most commodities are just starting to rebound
from their low points over the last 10
years since the Great Recession."
McGinnis added that the commodity rebound is related to "steady
economic growth and renewed
consumer confidence." The demand
for durable goods from consumers is
helping lift the demand for materials
such as copper and steel, which helps
drive up the price of various commodities generated by mining. He says that
when these commodity prices increase,
mining operations have an incentive
to extract more materials while the
price is high. Often, the price of crude
can be used as a proxy for the health of
most mining-related commodities.

44

APRIL 2018

| COMPOUNDINGS | ILMA.ORG

"No amount of regulation reform is going to
significantly improve the outlook for coal in a
world where natural gas is this cheap."
Projections for 2018 continue
to look up for oil. According to an
October 2017 World Bank Group
article, Commodity Prices Likely to Rise
Further in 2018: World Bank, oil is
expected to be $56 a barrel in 2018
compared to $53 a barrel in 2017.
Natural gas prices are projected to
rise 3 percent in 2018, and coal prices
are currently seen as retreating after a
climb of nearly 30 percent in 2017,
according to the World Bank. Metals
are also expected to slow: "The metals
index is expected to stabilize in the
coming year, after a 22 percent jump
this year as a correction in iron ore
prices is offset by increased prices in
other base metals."
Despite the mixed projections,
mining is still showing promise, but
one area that runs counter to this
logic could be coal mining. McGinnis
indicated that so long as the price for

crude oil is at $40 to $50 a barrel or
more, hydraulic fracturing ("fracking")
is rather profitable. When these wells
are active, there is an excessive amount
of natural gas being generated, which
creates a downward pressure on natural gas prices.
An example McGinnis used to
show how coal is tied to natural gas is
the 2015 production drop-off of coal
mining activity in the wake of a low
price point for natural gas. McGinnis
points to a study by BTU Analytics
from 2015: "When natural gas prices
drop below $2.50/MMBtu," he said,
"natural gas becomes economically
cheaper to use than coal (and comes
with added benefits of reduced pollution profile)." He reminded that "no
amount of regulation reform is going
to significantly improve the outlook
for coal in a world where natural gas
is this cheap." McGinnis said China's
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