Dollar’s Rise Papers Over Miners’ Woes – by Tatyana Shumsky, John W. Miller and Rhiannon Hoyle (Wall Street Journal – February 17, 2015)

http://www.wsj.com/

Mining companies, slammed by tumbling commodities prices, have in recent days vowed not to cut production, saying the stronger dollar is cushioning the blow of falling markets.

Companies ranging from Australian miners BHP Billiton and Rio Tinto to smaller firms like South Africa’s Lonmin PLC are benefiting from the stronger greenback because they receive dollars for the gold, copper and iron ore they dig up, but pay for labor and many other costs using local currencies. When the dollar rallies, revenue generated by metals sales stretch further in covering expenses.

The dollar’s rise is reverberating across the global economy, dividing the corporate world into winners and losers along geographic lines and reshaping the next phase of commodities prices. The greenback rose against virtually all currencies in 2014 and is off to a roaring start this year, as some central banks around the world, reaching for new ways to boost sluggish economic growth, take steps to devalue their currencies.

Some of the dollar’s biggest gains this year are against the currencies of major commodities exporters. As of Friday, the buck was up 5% against the Australian dollar, 7% against the Canadian dollar and 7% versus the Brazilian real.

For many U.S. firms that do business abroad, the strong dollar is an unwelcome development, making their wares more expensive for buyers in other markets and reducing the value of foreign sales when translated back into U.S. currency. But mining companies that might otherwise be forced to mothball projects at today’s commodities prices are keeping mines open and, in some cases, ramping up production as currency moves reduce costs.

As a result, supplies are continuing to increase, and analysts are tearing up their forecasts for metals prices, predicting they will fall lower and stay there longer. “Currencies have been a relief valve,” said Ben Magara, chief executive at Lonmin.

On Friday, Anglo American PLC, the fifth-largest mining company in the world by market capitalization, became the latest company to highlight the benefits of a stronger greenback. The U.K. firm, which reported a loss for 2014, nevertheless said weaker currencies in the countries where it operates added $1.3 billion to its profit. That was more than half the $2.4 billion hit the company took from lower commodities prices. Anglo also said it plans to boost iron-ore production at mines in South Africa and Brazil in coming years, even as prices for the key steel component trade near 5½ year lows.

Rio Tinto on Thursday reported a rise in profit, saying the weaker Canadian and Australian dollars helped boost margins.

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