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Commodity Super-Cycle and Decline

PDAC 2016: Hope for a new bull market in metals springs eternal at mining conference – by John Shmuel (Financial Post – March 9, 2016)

http://business.financialpost.com/

TORONTO – Veteran analysts at the world’s largest mining convention said Tuesday that the commodity bear market might be near its end.

The comments were made during a panel at the 2016 PDAC conference. Several analysts noted that there are bullish signs building up in the market, including a dearth of new projects, signs of tighter supply and the rock bottom level of capital spending in the industry.

Bullishness around mining stocks in general has certainly increased this month, as prices for metals such as copper, iron and gold have posted impressive gains.

“New capital spending has been cut, no one is building new mines, no one is looking for new mines,” said Greg Barnes, analyst at TD Newcrest. “We’ll have quite a rally by the end of the decade.”

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Unexpected headwinds keep commodity prices lower for longer – by Henry Lazenby (MiningWeekly.com – March 7, 2016)

http://www.miningweekly.com/page/americas-home

TORONTO (miningweekly.com) – A faster-than-expected slowdown in demand for commodities in 2015 has placed a damper on broad-based commodity price recoveries in 2016, compounded by lacklustre global economic growth and record inventories, which will take time to work down as production cutbacks and mine closures take effect.

Analysts representing the world’s top market intelligence firms were talking about commodities and the market outlook in Toronto on Sunday, on the first day of the yearly Prospectors and Developers Association of Canada’s convention – the largest mining show on earth.

Kicking off the afternoon session was Randgold Resources chief executive Mark Bristow, who outlined future strategic paths for mining companies in today’s new environment. He examined the challenges inherent in reconciling the industry’s essentially long-term nature with the market’s short-term demands and explained that the definition of growth was not immutable but changed from stakeholder to stakeholder and at different points in the price cycle.

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China riddle still puzzles big miners – by Amanda Saunders (Australian Financial Review – March 4, 2016)

http://www.afr.com/

Ivan, we’re sorry we laughed at you. When Ivan Glasenberg, head of the world’s biggest commodities trader, Glencore, said last August that he couldn’t read China – and nor could anyone else – it wasn’t the most comforting look.

Some of Ivan’s rivals were quick to disagree. “We don’t find China impossible to read,” BHP Billiton chief executive Andrew Mackenzie said a few days later. But seven months on, it’s clear that understanding China, at least in the short term, has become extremely difficult.

Indeed, when asked about long-term demand for iron ore at the company’s results last month Rio Tinto chief Sam Walsh pointed to recent comments by President Xi Jinping, and had to admit that “nobody quite understands what the new normal means”.

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Excerpt from The Remaking Of The Mining Industry – by David Humphreys

To order a copy of The Remaking Of The Mining Industry, click here: http://www.palgrave.com/gp/book/9781137442000

David Humphreys was formerly chief economist of the London-based mining company, Rio Tinto, and of Russia’s largest mining company, Norkilsk Nickel. Prior to entering the mining industry, he worked in UK government service as an advisor on minerals policy. He has lectured and published widely on the economic of the mining industry.

China Changes Everything: China and the rest of the emerging world

China’s rapid industrialisation in the first decade of the twenty-first century fitted into a broader narrative about how the balance of the global economy was shifting towards emerging market economies.

Strong growth in China and in other emerging economies over many years meant that the historical dominance of the global economy by the advanced Western economies was being eroded. As Figure 2.4 illustrates, through the 1980s and 1990s, global growth was still largely dominated by the advanced economies. In the 2000s, growth rates (based on PPPs) moved higher and growth was dominated by the emerging economies. According to the IMF, the emerging markets’ share of global GDP, which was 37 per cent in 2000, crossed the 50 per cent mark in 2013.

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Signs that metals prices have bottomed out buoys miners – by Ian McGugan and Brent Jang (Globe and Mail – March 2, 2016)

http://www.theglobeandmail.com/

Ivan Glasenberg is feeling better about the outlook for metals prices – and this time he may be right.

The chief executive officer of Glencore PLC, the giant miner and trader, indicated on Tuesday that he is growing more upbeat about commodities after a brutal 2015 in which his company lost 70 per cent of its market value as raw materials prices plummeted. “Have we bottomed? I think so,” he told reporters.

To be sure, that is pretty much the positive sentiment you would expect any mining chief to spout during one of the most brutal downturns in decades. But this time around, Mr. Glasenberg’s optimism may have the additional virtue of being true.

No one is calling for any immediate bounce-back in metals prices. However, it is at long last possible to detect early signs of a bottom.

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Looking To Buy A Mine? It’s A Buyer’s Market As Plunging Commodities Prices Force Mining Companies To Sell Assets – by Maria Gallucci (International Business Times – March 1, 2016)

http://www.ibtimes.com/

In the market for raw metals? Glencore PLC’s sprawling copper mine in the Chilean desert will set you back only $1 billion. Assuming you don’t mind a bit more of a splurge, how about Anglo American PLC’s iron ore mine in Brazil, which cost the company $14 billion to buy and build in the late 2000s? And if you’re more of a coal person, a string of mines are on the block across Australia.

It’s a buyer’s market in the global mining sector right now.

Plunging prices for minerals, metals and crude oil during the past year have hammered mining companies from Britain’s Anglo American and Switzerland’s Glencore to Australia’s BHP Billiton Ltd., Brazil’s Vale SA and the U.K.’s Rio Tinto PLC. Beset by climbing debts, deteriorating operating results and widening losses, the world’s mining giants are looking to boost their balance sheets by offloading costly assets.

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China’s African retreat: How a once-celebrated relationship turned cold – by Geoffrey York (Globe and Mail – February 27, 2016)

http://www.theglobeandmail.com/

The vast sprawling machinery of South Africa’s second-biggest steel factory is sitting idle these days. After decades of noise and dust and smoke, the factory quietly shut its doors this month, sending its last 1,800 workers home.

The once-busy highway outside the factory is now silent and empty, aside from a few prostitutes who patrol the road, raising their skirts desperately to the occasional passing motorist.

Evraz Highveld Steel and Vanadium, one of the world’s 15 biggest steel makers less than a decade ago, has fallen victim to a flood of cheap Chinese steel imports and a slowdown in demand from the Chinese economy. The entire South African steel industry has plunged into a deep crisis, with an estimated 50,000 jobs in jeopardy, despite last-ditch government efforts to protect the industry by imposing tariffs on cheap Chinese imports.

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China Tries to Tackle Its Commodities Crisis – by Dexter Roberts (Bloomberg News – Feburary 25, 2016)

http://www.bloomberg.com/

The steel industry suffers from a severe glut—but will resist cuts. China has had an overcapacity problem in its aluminum, chemical, cement, and steel industries for years. Now it’s reaching crisis levels.

“The situation has gone so dramatically bad that action has to happen very soon,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China, at a press conference in Beijing on Feb. 22, where a chamber report on excess capacity was released. That report’s conclusion: “The Chinese government’s current role in the economy is part of the problem,” while overcapacity has become “an impediment to the party’s reform agenda.”

Many of the unneeded mills, smelters, and plants were built or expanded after China’s policymakers unleashed cheap credit during the global financial crisis in 2009. The situation in steel is especially dire. China produces more than double the steel of Japan, India, the U.S., and Russia—the four next-largest producers—combined, according to the European Union Chamber of Commerce.

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COLUMN-China should follow Elvis’s advice for more action, less conversation – by Clyde Russell (Reuters U.K. – February 24, 2016)

http://uk.reuters.com/

Feb 24 – If you were to pick one thing that would do the most to help embattled commodity producers around the world, dealing with China’s massive over-capacity would probably rank highest.

It’s no secret that China’s surplus capacity in steel, aluminium, cement, flat glass and other intermediate commodities is keeping prices low and threatening the viability of global resource companies, as well as the health of the Chinese economy.

There certainly have been repeated statements from Beijing that the issues are being tackled, and it appears the authorities have realised that excess capacity is a far bigger threat than what it was during the prior boom years, when double-digit economic growth rates masked mounting problems.

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COLUMN-Governments’ bull policies for bear markets hurt commodities – by Clyde Russell (Reuters U.K. – February 22, 2016)

http://uk.reuters.com/

Feb 22 – One of the problems for embattled resource companies is that the legislative environment in which they exist is often no longer reflective of the reality of the current, or likely future, markets in which they compete.

In other words, government policymakers quite often have laws, taxes and regulations designed for a bull market when a bear market is in place, and vice versa.

While it’s easy to have a shot at politicians, in their defence, it can be the case that by the time they manage to go through the protracted processes of introducing new rules and regulations, the situation they envisaged has been substantially altered.

Indonesia’s minerals sector is a good recent example, but not the only one, of how even policies that were relatively well designed and had reasonable aims can backfire because the market has changed.

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Alcoa Sees Record Aluminum Deficit Even as Goldman Predicts Glut – by Joe Deaux and Sonja Elmquist (Bloomberg News – January 27, 2016)

http://www.bloomberg.com/

Alcoa Inc., which is spinning off aluminum assets later this year, sees something that much of the market doesn’t: an end to the prolonged surplus that left prices near a six-year low.

With about half the world’s aluminum plants losing money, the U.S. company that invented the domestic industry more than a century ago says global demand will exceed production this year by a record 1.2 million metric tons, forcing car and appliance makers to draw down inventories. While others predict smaller deficits, many banks including Goldman Sachs Group Inc. and producers like Norsk Hydro ASA say the glut will only get bigger.

Prices tumbled 19 percent last year, the most since 2008, and reduced output has been indicated in China, home to about half the world’s smelting capacity. But energy prices have kept plunging and the yuan is weakening.

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Commodities’ well-traveled road to nowhere. Cutting output – by Clyde Russell (Reuters U.S. – February 16, 2016)

http://www.reuters.com/

LAUNCESTON, AUSTRALIA – Live and don’t learn. That should be the motto of commodity producers who attempt to push prices higher by trying a variety of methods to restrict supply.

While the call by major producers including Saudi Arabia and Russia to freeze crude oil output at current levels is the headline of the week, it’s merely the latest in a long line of attempts to arrest sliding commodity prices.

In recent years various governments, producer bodies and even companies have tried to influence commodity markets in their favor, mostly with only very limited success.

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We should be so lucky as to have China’s crash – by David Olive (Toronto Star – February 16, 2016)

http://www.thestar.com/

E-commerce has taken a stronger hold in China than in most major economies. Walt Disney Co.’s $5.5 billion (U.S.) investment in doubling the size of a Disneyland Shanghai, which will re-open in June, is a bet that China’s current tourism decline is an aberration, and that the enlarged park will be profitable as early as 2019.

China is more of a magnet for Taiwanese immigrants than ever, prompting fears in Taipei of a brain drain. More than 600,000 of Taiwan’s 23 million people live at least half the year abroad, about three-quarters of them in China.

And development continues on the world’s biggest megalopolis, Jing-Jin-Ji, connecting Beijing, Tainjin and the Hebei Province, with a population about the size of Japan’s 130 million.

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Mining stocks resemble ‘a big Walmart sale’ as low commodity prices persist – by Henry Lazenby (MiningWeekly.com – February 12, 2016)

http://www.miningweekly.com/page/americas-home

TORONTO (miningweekly.com) – Sentiment remains negative about the mining and oil and gas industries as the supercycle nears a protracted potential bottom, resulting in dwindling market capitalisations for companies large and small and cruelly undervalued stock prices – creating a buyer’s market for the savvy investor.

CEO and chief investment officer at US Global Investors Frank Holmes, who specialises in natural resources and emerging markets investing, notes that the mining industry is on sale at the moment.

“The entire industry’s stocks are like a big Walmart sale. There’s a big sale happening right now, and it is the cheapest area of the equity markets by far,” he stated during the recent Cambridge House Resource Investment Conference in Vancouver.

Pan American Silver founder Ross Beaty agrees, saying this market is a phenomenal buying opportunity for oil and gas and mining stocks. “It’s a wonderful time to be in the market,” he says.

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Mining: End of the supercycle – by Michelle Madsen (The Africa Report – February 12, 2016)

http://www.theafricareport.com/

The deepest rout in commodities prices in more than a dec- ade has seen a fundamental reconfiguration of Africa’s mining sector. The past year has seen China’s growth slow sharply, driving prices down and prompting waves of mines across the continent to shut up shop, regardless of size.

The resource landscape has never looked bleaker for some – from the troubles of seemingly invincible Swiss commodities giant Glencore to the hundreds of exploration and development projects quietly disappearing from company prospectuses. Mine closures and project cancellations have also gutted the fortunes of currencies dependent on mineral exports.

With the commodity supercycle showing no signs of swinging back into a bull market, the short-term outlook for Africa’s miners given by international funding bodies and banks remains gloomy.

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