Deep Sea Resources Mining

Deep sea mining is a threat to marine biodiversity. The deep ocean has a vital ecological role.

In the face of growing international opposition to deep sea mining, at the end of October, the UK government announced its support for measures designed to protect the world’s oceans and improve the conservation of marine biodiversity. Ahead of this month’s UN Climate Change Conference (COP28) in Dubai, the International Seabed Authority (ISA), a UN observer organisation, has been negotiating a moratorium on the granting of exploration licences for deep sea mining projects that involve the extraction of minerals such as precious metals, copper, and cobalt. Talks are expected to continue into 2024.

Increased demand for minerals and metals, coupled with supply shortages of land-based resources, has led to interest in marine mineral resource projects. The deep ocean has a vital ecological role. It absorbs and stores over 90% of the excess heat and nearly 40% of the carbon dioxide generated by humanity. Disturbing this during a climate crisis could have an irreversible impact on the climate.

The UK government’s decision brings it in line with Brazil, Germany, France, and some twenty other countries. Yet exploration can still appear to go ahead, as the UK government is reported to be sponsoring two exploration licences to extract key metals for electric vehicle batteries from the Pacific, which are held by a Norwegian company.

While the role of the ISA is to regulate exploration for exploitation of deep seabed minerals, there is no agreed code, and commercial pressures have seen the ISA enter 15-year contracts with 21 contractors for the exploration of key minerals. The explored areas are the Clarion-Clipperton Zone, the Indian Ocean, the Mid Atlantic Ridge, and the Pacific Ocean. Some fourteen countries are either sponsoring exploration or research contracts for companies looking to mine the seabed. These include China, Russia, South Korea, and India. Indeed, China is reported to have claimed rights to 92,000 sq. miles of international seabed. Furthermore, it is thought to be planning to start seabed mining as soon as 2025, as it holds five of the exploration licences granted by the ISA.

Many questions remain over the technical feasibility of mining on the seabed, and while there are solutions, many are not yet proven. However, the shift to net zero is going to require vast amounts of rare minerals and countries are now vying for strategic leadership in new green technologies, such as electric vehicles and wind power. Is the further destruction of the Earth’s marine biodiversity a price worth paying to achieve net zero? Difficult choices lie ahead. Ominously, Russia is attempting to claim more of the Arctic seabed as its own territory—1.7 million square kilometers!

What have we been watching?

Market attention focused squarely on inflation last week, with data from both the US and UK. Slightly lower than expected US inflation data once again raised market hopes that the Federal Reserve has reached peak interest rates. UK inflation data was also a little lower than expected, which helped propel interest rate-sensitive domestic sectors higher within the UK mid-cap index, such as housebuilders and property. By comparison, the top 100 UK companies, which comprise many overseas earners, were held back as Sterling strengthened to above $1.24. Elsewhere, there were rumours of further stimulus measures from Beijing with $137 billion reportedly allocated to urban village renovation and affordable housing programmes. This pushed commodity prices such as copper and iron ore higher.

On the geopolitical front, Presidents Joe Biden and Xi Jinping met in the US, and the two superpowers agreed to resume military-to-military communication – a step that was high on America’s wish list.

 

In the UK, annual wage growth remains very high at 7.8%, but does appear to be downshifting to nearer 5%, consistent with the behaviour of recent pay settlements. However, this is still too high to meet the Bank of England’s (BoE) inflation target. Meanwhile, the annualised rate of inflation dropped from 6.7% to 4.6% in October, which was slightly better than expected and reflected lower energy prices. Core inflation edged slightly lower from 6.1% to 5.7%. The BoE is focusing on services inflation at present, which dropped from 6.9% to 6.6%. Taken as a whole, the latest inflation data  suggests the BoE should be more comfortable holding interest rates.

This Wednesday will see the Autumn Statement, with the market expecting the government to  ease policy. With inflation still high and the underlying fiscal picture still fragile, the Chancellor may be cautious, but with an election due next year, some form of easing looks likely -possibly £5bn-£10bn? -assuming the Chancellor holds something in reserve.

 

US inflation was slightly lower than expected in October at 3.2%, down from 3.7% while core inflation dipped from 4.1% to 4%. A decline in energy prices offset a slight increase in food and rent. This data will no doubt be seen as very good news by policy makers as core goods prices are basically stable while services inflation is edging downward, although still above the Fed’s target at 5.5%. Within services inflation, rents continue to rise rapidly and are proving one of the most ‘sticky’ elements.

 

In a further blow to PM Fumio Kishida, Japan’s economy has gone into reverse. The Japanese economy contracted by 0.5% in the third quarter which was worse than expected. This was due to a combination of weak consumer spending and exports.

 

China’s retail sales and industrial production accelerated in October beating market estimates. However, the data is set against weak lockdown comparatives and month-on-month were almost little changed. As noted above, Beijing is believed to have announced further stimulus measures.

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Brent oil held around $81 as US crude stocks continued to build last week and the IEA was more cautious about the outlook for global oil demand in 2024 than OPEC+.  US President Joe Biden said he is confident that the Arab states will not weaponise oil given events in Gaza however, Saudi Arabia is reported to be considering extending its oil production until spring 2024. Meanwhile, the US has hit three UAE shipowners with sanctions for violating the Russian oil price cap.

Finally, tough times for the double-glazing industry with the cost-of-living crisis and higher interest rates hitting housing activity. However, is there a glimmer of hope? In 2025, compliance with the Future Homes Standard will become mandatory, which aims to ensure new homes built from then on will produce 75%-80% less carbon emissions than homes built under the current building regulations. This will include making triple glazing the standard in new properties.

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