Geopolitical tensions impacting mining supply chains

Geopolitical tensions impacting on supply chains are increasing volatility in the mining sector, as the industry faces a fairly bleak short-term future. According to Willis Towers Watson’s Mining Risk Review 2018, the mining industry has enjoyed mixed fortunes in the past 12 months and the report authors state that, while there had been some encouraging signs that commodity prices were on the rise in the early part of the year, things certainly look bleaker for the final quarter of 2018. The report warns: “Falls in key commodity prices such as copper have recently disappointed investors; the US dollar has been strengthening significantly in recent months; concerns are mounting in respect of inflation and higher raw material costs; and the industry continues to face hostility from environmentalists and different communities around the world.” Other key issues facing the mining industry include: The need to consider integrating enterprise risk management into the industry’s risk culture The need to pay greater attention to managing project delivery The impact of some major (re)insurers’ retreat from coal underwriting The rise in regulatory pressures in certain regions, such as Latin America A possible change in mining insurance market dynamics, as direct and facultative (D&F) capacity becomes more restricted following recent losses. However, the report highlights the increase in geopolitical tension, including environmental and social pressures on mining companies. Better news is that global coal consumption remains at well above five billion tonnes, with China accounting for nearly half of this figure, fuelling demand. The report suggests that maintaining a 20th century view of managing mining risk is no longer an option and that greater attention needs to be paid by the industry to managing project delivery. Investors in some regions need to do their homework to avoid a regulatory headache, while the whole market needs to be prepared for a possible change in insurance market dynamics. Commenting on the report, Graham Knight, head of downstream natural resources for Willis Towers Watson in London, said: “This is a critical time for the mining sector. Although there were encouraging signs of a rise in commodity prices earlier this year, it is clear that things are looking bleaker for the rest of 2018. “Meanwhile, increased geopolitical tensions are clearly posing significant uncertainty for the industry, as is the retreat from thermal coal risks by certain sectors of the insurance market. “And as D&F market capacity becomes more restricted, our mining clients may need to look for alternative solutions if they want to mitigate any future volatility in insurance market pricing.” The review also outlines key losses in the past five years, noting a reduction in major claims from 73 in 2017 to 30 in 2018 (to date). It also observes that the 2017 natural catastrophes have not had the dramatic impact on insurance market pricing that was anticipated 12 months ago.

Geopolitical tensions impacting mining supply chains

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