Commodities in free fall: miners bracing for $192bn in asset pain – by Barry FitzGerald (The Australian – July 27, 2015)

Persistent weakness in already clapped out commodity prices is triggering a new round of asset value writedowns on top of the $US140 billion ($192bn) notched up by the global mining industry since 2011.

The new round is not expected to match the $US58bn impairment hit the global industry took in 2013 when it became clear that the decade-long China-led boom in prices and demand was over.

But fears that renewed commodity price weakness as 2015 has unfolded is structural, and will persist for the foreseeable ­future, has again put asset values under the pump.

Aluminium, coal, nickel and iron ore have retreated sharply from 2014’s already battered levels, prompting a new hard-nosed assessment of whether long-term commodity price assumptions across the industry are still valid.

Aluminium has been hit particularly hard. It is down 30 per cent on its 2014 December half average of $US2378 a tonne at $US1642.

Nickel has plunged more than 32 per cent from its December half average to $US11,300 a tonne — prompting not just discussion on asset values, but on the ability of a big chunk of the industry to survive.

Coking coal prices have slumped 18 per cent from the December half average while thermal coal has simply remained at depressed level of $US60 a tonne.

The more recent breakdown in copper, the industry’s bellwether metal, from the December half average of $US2.98 a pound to $US2.38 a pound, is a fresh cause for alarm.

That 20 per cent fall has come on the heels of iron ore’s 28 per cent plunge from the December half average of $US70 a tonne to $US50.

The ongoing weakness in ­mineral commodity prices reflects slowing demand from China at a time when oversupply is widespread.

The severity of the situation — and the expectation that it will not turn around in a hurry — has been reflected in the $90bn combined sharemarket value fall of BHP Billiton and Rio Tinto alone in the past 12 months.

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