Five reasons mining companies are in a hole – by Jon Yeomans (The Telegraph – December 23, 2015)

Miners have had a terrible year in 2015 – and 2016 doesn’t look like it will be much better

From the slump in the prices of almost all the world’s main commodities to the bursting of a Brazilian dam jointly owned by BHP Billiton and Vale, which, at the latest count, killed 17 people, 2015 has been a year to forget for the world’s mining industry.

The stocks of companies in the sector have had a terrible 12 months as the world’s biggest miners adjust to a painful new reality of low commodity prices. Worse still, the outlook remains hugely uncertain.

Anglo American is the biggest faller in the FTSE 100 this year – down nearly 74pc from the beginning of January. Glencore is not far behind. Their peers such as BHP Billiton and Rio Tinto have also hit multi-year lows.

Here are five reasons why mining is in such a big hole.

1. China’s demand is slowing

As with much of the global economy, all roads lead to China.

A decade ago, when China’s economy was growing at more than 10pc a year, it was a voracious consumer of raw materials. Miners around the globe opened new mines to feed this vast demand.
China’s rapid development created a “super-cycle” in commodity prices – but now its growth has moderated to around 6.5pc a year, and its economy is undergoing a shift to a more consumer-led, services-based model.

As a result, China doesn’t need quite as much coal, copper or iron ore as it once did. To make matters worse, its commodity producers are dumping unwanted stock on the market, pushing down prices further. Cheap Chinese steel, for example, has been blamed for pushing the UK steel industry into crisis.

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