In US dollar terms, metals commodities have seen drastic falls over the past 4-5 years which will just perpetuate the mining boom-bust cycle.
The world of metalliferous mining – for the most part at least – is suffering, and suffering badly. No more China-driven supercycle (at least for the short to medium term). More of a China-driven downcycle seems to be in place as Asia’s biggest economy ceases to grow at its recent pace, and there are suggestions too that the Chinese, who look at these things with a rather longer-term viewpoint than most Western governments and businessmen, may even be actively driving down some commodity prices through destocking and reducing imports.
No matter that this impacts on the country’s own mining operations – there has been something of an ongoing programme anyway to rein in some of that nation’s more inefficient and most-polluting mining operations. Air quality in most Chinese cities remains below the standards acceptable in much of the West, but this is all changing, slowly, as the nation restructures. This could be a painful process.
While precious metals prices seem to engender most media coverage, there is little real evidence that China is actively driving these prices downwards – indeed this may be one of the few areas where Chinese demand is supporting prices, albeit obviously not very effectively. But take iron ore, where prices are currently close to one-third of their peak to see the real impacts of declining Chinese demand. With the big low cost producers raising production to protect revenues, smaller, higher cost operations (some of which are large) are being driven out of business.
There is a BHP Billiton presentation out today which reckons its cash costs – before freight and royalties – for producing a tonne of its high quality iron ore are only $20.35 as against a sale price of around $59 and one has to assume that the world’s other top two producers, Vale and Rio Tinto, are producing at around the same basic cost levels – which leaves many other iron ore miners – particularly those which need to beneficiate their output to bring it up to acceptable Fe tenors, pretty well high and dry. So the big boys can remain highly profitable, even at current prices (although not as profitable as before) while the slew of competitors which brought mines to production when prices were high are, to say the least, struggling to stay afloat.
Base metals are also suffering, and the key one here has to be copper which accounts probably for a greater proportion of the market in value terms than all the other base metals together.
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