Editorial: Commodities rout tests miners’ pain threshold – by John Cumming (Northern Miner – July 29, 2015)

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry. Editor John Cumming MSc (Geol) is one of the country’s most well respected mining journalists.  [email protected]

July has been such a brutal month for commodities producers that even last year’s prices are looking pretty good now. The rout in commodities prices in recent weeks has been unrelenting, wide-ranging and driven by macroeconomic factors far beyond the ability of miners to control.

The Bloomberg Commodity Index has returned to levels not seen since 2002 — implying that the much talked-about “Commodities Supercycle,” sparked and sustained by unprecedented demand growth stoked by China’s booming economy, is effectively over.

The state of the Chinese economy is foremost in the minds of commodity price forecasters, and all signs point towards slowing growth rates and further sharp corrections in the Chinese stock markets in the months and years ahead. On July 27, the Shanghai Composite Index suffered its worst one-day drop (8.5%) in eight years, and it would have been worse without the 10% daily maximum-loss limits on blue-chip stocks and the strong-arm tactics of the Chinese government to buy shares and pressure companies into buying shares.

The other two dominant negatives at the macro level are the ongoing Greek debt crisis, and broad consensus that the U.S. Federal Reserve will raise interest rates later this year, further driving up the U.S. dollar and sinking commodities priced in U.S. dollars.

Oil prices are showing the strains of reduced global economic growth, with West Texas Intermediate prices dipping below US$48 per bbl at press time and Brent not far behind at US$53.30 per bbl., both down 16% from a month earlier. The loonie’s dramatic fall to just US78¢ from US92¢ only a year ago reflects Canada’s status as a “petro state” with high-cost production.

Oil prices are also under pressure on the supply side from two sources: U.S. frackers, who have cut costs dramatically at their operations and kept their unexpectedly strong production numbers; and from the prospect of Iranian oil hitting global markets in full force, as sanctions are lifted in the aftermath of the Iranian uranium deal with the international community.

For the rest of this editorial, click here: http://www.northernminer.com/news/commodities-rout-tests-miners-pain-threshold/1003696545/

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