Supply Side Price Pressure in the PCB Market Might Not Be Leaving

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Non-ferrous Metals

British broadsheet newspaper The Daily Telegraph recently illustrated the supply market risks facing any significant user of gold, quoting Kevin McArther, chief executive of GoldCorps. We won’t build a mine where we won’t go on holiday, he says of mining investments. The Daily Telegraph noted that the world’s reserves of gold are dwindling fast. At the same time, demand is rising. In addition to its obvious uses in jewelery, gold is a key component in PCBs and other high performance electronic circuitry due to its unique conducting properties. Miners, however, are failing to invest in new facilities because so much of the probable reserves exist in countries run by demagogues or serial expropriators, including areas in South America, Russia, and many parts of Africa. Gold production in South Africa is down to its lowest level since 1932, while production costs are at their highest level ever. So with a tight supply market, world credit instability, and political uncertainty, it’s probable that gold will continue to attract buying interest and see long term price support. Allowing for inflation, gold would have to reach $2,500/ounce to match the last peak in 1980, meaning that the current level of $800+ may not be as unrealistic as we would immediately think. We would already expect miners to talk up the market, but when investment analysts join in, we should take notice. Following a correction between now and the end of the year prices in excess of $900/ounce are being touted for first quarter 2008 and even over $1000/ounce as the year unfolds. With oil at $80+/barrel, both resins and gold are likely to remain high for the foreseeable future. For the PCB makers, then, there is no relief in sight.

–Stuart Burns

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