TORONTO (CP) -- As automakers around the world cut production in response to a substantial slump in demand for new vehicles, miners are being pinched too as an important chunk of the global demand for base metals dries up.
The auto industry accounts for 11 percent of global copper consumption, 16 percent of nickel consumption, 22 percent of aluminum consumption and 23 percent of zinc consumption, according to a report by John Redstone of Desjardins Securities.
But, as people delay purchases of new vehicles amid a bleak economic outlook and tight consumer financing, automakers are being forced to scale back production, resulting in lower demand for auto parts and the base metals that constitute them.
John Turner, leader of the Global Mining Group at corporate law firm Fasken Martineau, said the slowdown in auto production is an important factor in slumping prices for base metals, many of which have declined by 60 percent or more in recent months, and the resulting closure of many mines.
"We're certainly seeing a lot of mines that were in development being stopped and mines that were in production are being put on care and maintenance," Turner said.
"Part of that was just a sideswipe from the liquidity credit crisis, but part of it was a massive downturn in production in the auto and other industries."
Many miners, as well as investors in commodities and mining stocks, believed they could continue to rely on demand for new vehicles in the exploding markets of China and India, but even that is no longer true, said Andrew Martyn, a vice-president at Toronto-based investment adviser Davis-Rea Ltd.
"The Americans are important, but I believe they were dwarfed by the expectations of China and southeast Asia," Martyn said.
"I'm hearing about Chinese factories actually being mothballed... the slackening in U.S. autos is clearly responsible for a portion (of the commodity price decline), but I think the bigger picture would be the worldwide slackening in cars."
North America has been hit the hardest by the slump in auto sales, and there are few assembly plants in Canada and the U.S. that have been spared from production slowdowns and temporary layoffs. But the global financial and economic crisis means the slowdown in the auto industry has spread to every continent.
The prices of base metals used in vehicle production have slumped in tandem with shrinking demand.
Copper prices on the New York Mercantile Exchange are approximately US$1.50 per pound after reaching above $4 per pound in the summer, while zinc prices are approximately 50 cents US per pound after reaching above $1.20 per pound last February.
Prices for other metals used in vehicle production, including aluminum, nickel and platinum are also down substantially.
