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No light at the end of the tunnel

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World Coal,

There could be another two years left in the current bear market, according to a new report from SNL Metals & Mining, which compares today’s slump with the last industry downturn in the late 1990s.

From 1997 to 2002, industry CAPEX fell by 42%. Breaking this down, stay-in-business (or sustaining) CAPEX held up reasonably well, recovering to pre-slump levels in only three years. But expansion CAPEX – the money companies spend on new projects – took a much harder hit, falling until 2002 and not returning to 1997 levels until 2004.

Taking this as a guide and 2012 as the peak, the report forecasts another two years of falling CAPEX with several years of subdued recovery after that. But there are signs that it may take even longer: “Worryingly, metal prices have already fallen 12% further than they did during the 1990s and at the time of writing they continue to fall,” concludes the report.

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