Bonfire of the Writedowns Just Starting – by David Fickling (Bloomberg News – March 28, 2016)

What does $13 billion of burning money smell like? Commodity investors are getting a nose for it. Japanese trading houses Mitsui, Mitsubishi, and Sumitomo have announced 767 billion yen ($6.8 billion) of writedowns on assets this year, including copper, nickel, iron-ore and natural-gas projects.

PetroChina wrote 25 billion yuan ($3.8 billion) off the value of oil and gas fields that have “no hope” of making a profit at current prices, President Wang Dongjin said last week, while Citic posted a HK$12.5 billion ($1.6 billion) impairment on an Australian iron-ore mine.

Cnooc’s annual results last Thursday count as a good news story against that backdrop, with impairments of 2.75 billion yuan that were lower than the previous year’s.

Investors might hope after all this that we’d be reaching the level where mining and energy assets have been written back to normal levels, allowing companies to start the hard work of rebuilding. It doesn’t look that way.There’s certainly been a reality check of late.

The balance sheets of major mining and energy companies have shrunk by $856 billion over the past 12 months, putting the value of their total assets at their lowest level since 2011, according to data compiled by Bloomberg.

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