Commodity Super-Cycle and Decline – Page 30

Focus on Africa for next commodities ‘supercycle’ – by Paul Murphy (Financial Times – October 30, 2015)

October 30, 2015

http://www.ft.com/intl/

Battered miners will pivot to continent when excess capacity is finally squeezed out

There was a frenetic air to trading in London’s listed miners this week — things were faster, wilder and even more uncontrolled to the downside than battered sector players have come to expect.

No one mentions the concept of a commodities “supercycle” these days, not after four years of a downturn with no end in sight. The themes of oversupply and faltering Chinese demand are well-worn, but the focus recently has moved to corporate debt levels and dividends. Or rather debt and the non-deliverable nature of those dividends.

There is also the slightly unintuitive issue of rapidly falling production costs in the mining industry, noted by Investec’s sector specialist Marc Elliott this week as he and his research team again chopped their commodity price forecasts across the board.

Taken in tandem with a belated realisation that China itself built massive new mining capacity during the latter stages of the boom years —

For Mongolia, China’s slowdown is provoking emergency response – by Michael Kohn (Chicago Tribune/Bloomberg – October 24, 2015)

October 29, 2015

http://www.chicagotribune.com/

While China’s slowing economy has singed stock markets around the world, no nation is more affected than neighboring Mongolia.

Things have gotten so bad that the government in this mineral-rich nation is planning job and salary cuts for bureaucrats, and the sale of of shares in state- owned companies including the postal service.

Sandwiched between China and Russia, Mongolia is an early illustration of fallout from slower growth in the world’s second-biggest economy. “When China sneezes, we get a cold. That is how the situation is. It really affects us in a major way,” Dale Choi, founder and director of the research firm Independent Mongolian Metal & Mining Research, said in a phone interview.

That’s because about 88 percent of Mongolia’s exports — mostly commodities including coal — wound up in China in 2014 and falling revenue from these products is pushing Mongolia deeper into economic crisis. Earlier this month the country’s Finance Minister Bolor Bayarbaatar unveiled emergency austerity measures so the government can pay its bills.

NEWS RELEASE: Mining industry valuation goes below US$1 trillion according to SNL Metals & Mining’s latest report.

October 29, 2015

The mining industry’s value to investors has fallen for five consecutive months.

London – 29 October 2015 – The market value of the mining industry’s listed companies has fallen below US$1,000 billion for the first time since April 2009. In its recently published Industry Monitor, SNL Metals & Mining notes that the aggregate market capitalization of 2,684 listed companies tracked in the SNL database at the end of September was only US$934 billion, compared with US$1,030 billion at the end of August. This represents a 9.3% month-on-month decline (there was the same number of listed companies).

The industry’s valuation on the world’s stock exchanges has fallen over 43% since the middle of last year, and is now only 39% of the US$2,415 billion valuation achieved in April 2011. On this basis, the industry is worth considerably less than Apple Inc. (US$650 billion) and Google (Alphabet Inc.; US$440 billion). The low point remains November 2008, when the market capitalization of the then 2,390 listed companies was US$656 billion.

The value of the 100 largest listed mining companies is now under US$800 billion, having fallen below the US$1,000 billion mark at the end of July for the first time since June 2009.

Iron ore price crashes through $50 – by Frik Els (Mining.com – October 28, 2015)

October 29, 2015

http://www.mining.com/

The price of iron ore dropped for the 12th session in a row on Wednesday falling through the psychologically important $50 a tonne level as bearish fundamentals overwhelm the sector.

On Wednesday the benchmark 62% Fe import price including freight and insurance at the Chinese port of Tianjin declined 2.6% to $49.50 a tonne, the lowest since mid-July and down 11% in just two weeks according to data provided by The SteelIndex. In July, the steelmaking raw material on a spot price basis, fell to a record low of $44.10.

China forges 46% of the world’s steel and consumes for more than 70% of the world’s seaborne iron ore trade, but years of overproduction and unprofitability at the country’s giant state-owned mills are now bringing 30 years of growing output to screeching halt.

China’s largest steel producers had combined losses of CNY28 billion yuan ($4.4 billion) in the first nine months of 2015, according to the China Iron and Steel Association as mills struggle to remain profitable amid a saturated domestic market.

Goldman sees significant ‘downside’ risk for iron ore – by Jasmine Ng and David Stringer (Sydney Morning Post/Bloomberg – October 28, 2015)

October 28, 2015

http://www.smh.com.au/

Iron ore is sinking back toward $US50 a metric ton as expanding low-cost supply and sputtering demand in China spur concern a global glut will persist into 2016, with Goldman Sachs frecasting significant losses.

“It’s going down significantly,” Katie Hudson, managing director and senior investment manager at Goldman Sachs Asset Management Australia, said in an interview on Tuesday. “The major producers are adding incremental volume at around $US20 a ton, that gives you a sense of where the vulnerability is.”

Ore with 62 per cent content delivered to the Chinese port of Qingdao rose for the first time in seven days, adding 0.9 per cent to $US51.50 a dry ton on Tuesday after falling to $US51.03 Monday, the lowest since July 16, according to Metal Bulletin Ltd. The raw material – which bottomed at $US44.59 on July 8, a record in daily price data dating back to 2009 – is set for the first monthly loss since July.

The renewed decline shows the global market has yet to reach a balance as the biggest miners boost cheap output while steel consumption contracts in China.

Big miners kick the empire building habit – by James Wilson (Financial Times – October 26, 2015)

October 27, 2015

http://www.ft.com/

BHP Billiton and Rio Tinto are being forced to curb their spending amid China’s economic slowdown

When the chief executive of one of the world’s biggest mining groups had to find words to describe his industry’s litany of problems, he turned to a US country song with an apt title: If You Are Going Through Hell.

“If you’re goin’ through hell keep on going,” were the lyrics recited by Freeport-McMoRan’s Richard Adkerson at a London reception this month, as his Arizona-based company battles a plummeting copper price and burdensome debts. “Don’t slow down, if you’re scared don’t show it . . . you might get out before the devil even knows you’re there.”

Forget the devil: mining investors are only too aware that the sector is a long way from paradise. The industry’s fortunes have deteriorated significantly since the end of the commodities “supercycle” — a big upward shift in demand driven by China’s post-2000 emergence as a manufacturing superpower.

[Africa mining sector] Huge Potential, Wrong Time? – by Jade Davenport (World Policy.org – October 26, 2015)

October 26, 2015

http://www.worldpolicy.org/

Africa’s mining sector has proven to be something of a mixed blessing. The continent’s mineral resources offer enormous possibilities of wealth, but they are also hard to reach. Sub-Saharan Africa, along with the inhospitable Arctic, remains the most underexplored region on earth, geologically speaking. Yet the continent accounts for approximately 30 percent of the world’s mineral reserves.

The geographical and logistical difficulties involved in locating and accessing Africa’s resource wealth have been exacerbated by the constrained post-2008 macroeconomic climate. Investors have been reluctant to fund new projects in far-flung geographies despite the rich rewards such projects offer in the medium to long term.

One lingering consequence of the 2008 global financial crisis has been that equity markets have largely closed up, says Wickus Botha, a mining and metals expert at EY, an accounting and professional services firm. Companies in high-risk, long-term industries such as mining have a harder time finding funding. This applies even more for projects in more remote regions.

Two factors have compounded the decline of interest in mining investment, Botha says.

America’s Heartland Feels a Chill From Collapsing Commodity Prices – by Nelson D. Schwartz and Julie Creswell (New York Times – October 23, 2015)

October 23, 2015

http://www.nytimes.com/

In China and other emerging markets, growth is waning and demand for the raw materials that drive the global economy has dried up.

A thousand miles south of Granite City, Ill., a gritty steel town on the Mississippi River, West Texas oil rigs have shuddered to a halt. Seven hundred miles north, mines in the Iron Range of Minnesota have been stilled.

The drilling rigs, with their deep underground pipes, once consumed much of the steel that Granite City’s blast furnaces could produce, while the mines supplied the raw material.

So now, more than 2,000 workers at the mammoth United States Steel plant not far from St. Louis are waiting to see if they will be next. This month, the company warned them it might be forced to idle the plant. Layoffs could begin around Christmas.

Granite City may be waiting, but a chill in economic activity is already evident across a broad swath of the nation’s heartland stretching from the Gulf of Mexico to the Canadian border, as prices of commodities sink.

COLUMN-China’s economic data is dodgy, but it doesn’t matter – by Clyde Russell (Reuters U.K. – October 23, 2015)

October 23, 2015

http://uk.reuters.com/

Oct 23 (Reuters) – There is widespread scepticism about the accuracy of China’s economic growth numbers, but the real question shouldn’t be whether the data is credible, it should be whether it matters that it isn’t.

The official gross domestic product (GDP) figure of 6.9 percent year-on-year growth for the September quarter was widely condemned by mainly Western economists as a fiction bearing little resemblance to actual economic activity.

At the World Commodities Week conference in London this week, the consensus was that Chinese growth was more in the region of 5 to 6 percent, and that the official number owes more to political expediency than to economic reality.

While this may indeed by true, the issue really should be whether absolutely accurate data is necessary when trying to get a handle on China.

If you move from the economic world to the commodities world, China watchers have grappled with dubious statistics for so long that they have become inured to them, to the point where some barely reference official numbers.

Cash-Starved Mines Draw New Money on Bet Metal Slump Ending Soon – by Danielle Bochove (Bloomberg News – (October 23, 2015)

October 23, 2015

http://www.bloomberg.com/

The world’s mining companies are so desperate for cash that more are selling their future metal production, drawing interest from investors willing to bet that the worst commodity slump in a generation is near a bottom.

Producers including Glencore Plc and Barrick Gold Corp., seeking to shore up weakened balance sheets, are looking to tap “streams” of metal from existing mines in a financial transaction that was previously used mostly for early-stage exploration.

While the number of so-called streaming deals has more than doubled as prices tumbled over the past four years, the need for cash is outpacing the capacity of a handful of specialists like Franco-Nevada Corp. and Silver Wheaton Corp. who are the main sources of funding.

Macquarie Capital Markets Canada Ltd. says unmet demand for deals may reach $6 billion, even as Franco-Nevada pledged to tap a $1 billion credit line to fuel more transactions.

The growing need for mine financing is drawing interest from fund managers hoping to acquire secure supplies of metal at low prices for years to come.

The Commodities Boom Is Dead. Long Live the Commodities Boom. – by David Fickling (Bloomberg News – October 23, 2015)

October 23, 2015

http://www.bloombergview.com/

What’s going on with BHP Billiton? The world’s biggest miner bid for a share in a Chilean copper mine this year and is exploring for offshore petroleum in Australia and the Gulf of Mexico. Isn’t the commodities super-cycle meant to be over?

One way of thinking about it is to take a trip to your local supermarket. Its owners probably purchased a lot of steel, concrete and bricks while it was being built. Now the doors are open, they’re buying stuff that shoppers use every day: Food to fill their bellies, gasoline to fuel their cars, aluminum foil to wrap their lunch, electronic goods wired with copper, and stainless steel cutlery alloyed with nickel.

Similarly, the U.S. used up a lot of gravel, cement, and asphalt to build the Interstate Highway system. Once that was completed, the main beneficiaries were the oil companies powering the cars using it.

Sorting commodities into capital products that we use once, and operational ones we use again and again, helps make sense of what BHP Chief Executive Officer Andrew Mackenzie is up to.

Is iron ore headed for US$40 per tonne? – by Cole Latimer (Australian Mining – October 22, 2015)

October 22, 2015

http://www.australianmining.com.au/

Pundits are predicting a massive decline and a new low for iron ore.

Vice president for Citigroup’s China commodities research group, Ivan Szpakowski, has pointed to a new recent low for the metal of US$40 per tonne next year, according to the Sydney Morning Herald.

it comes as the price of iron ore hits its lowest point since late July, and the benchmark 62% Fe import price at the port of Tianjin fell to the US$52.50, although it is yet to reach the seven year low seen in early July of US$44.59.

According to Szpakowski, the slowdown in Chinese demand coupled with oncoming oversupply thanks to record production rates from Vale and BHP is likely to drive down the price below US$50 per tonne by the end of this year, and to US$40 per tonne or lower by the end of the March quarter next year.

China’s miners ‘must learn’ from bungled foreign acquisitions – by Eric Ng (South China Morning Post – October 21, 2015)

October 21, 2015

http://www.scmp.com/

Industry observers say Chinese companies must learn from their bungled foreign acquisitions

Tianjin – China’s mining firms have a mixed record on overseas acquisitions, but they can learn valuable lessons from missteps made in the past few years and adjust their strategies, say mining-sector executives.

“Chinese firms are still climbing the learning curve, many failures have dotted the path in the past few years,” said Wang Side, vice-president of Chinalco Resources – a unit of Aluminium Corp of China, the No 2 producer of the metal.

According to Dealogic, Chinese firms made US$4.25 billion in overseas mining acquisitions in the year’s first nine months, from US$8.8 billion in the year-earlier period, when the volume was boosted by a US$7 billion acquisition by state-backed MMG in Peru. The deal volume in the first nine months of 2014 was US$4.4 billion, and US$3.3 billion in the same period of 2013.

Wang told an annual mining conference that he considered the three main reasons for Chinese outbound-investment failures to be poor timing, poor selection of investment targets and poor deal pricing.

Miners proving stubborn on output cuts despite price slide – by Eric Onstad (Reuters U.K. – October 21, 2015)

October 21, 2015

http://uk.reuters.com/

LONDON, Oct 21 (Reuters) – Base metal mines dipping into the red are proving unexpectedly resilient against output cuts, which is likely to prolong and deepen already weak prices.

Some mines are resisting cuts in production by hedging when prices pop higher, others are absorbing losses because shutdown costs are even steeper, while fear of painful job losses is keeping still other loss-making operations alive.

The London Metal Exchange index of its six main base metals has shed a fifth of its value over the past 12 months.

In some metals, such as nickel, about half of capacity is loss making after the rout on commodity markets, largely due to fears about slower growth in top metals consumer China.

“Given that so many nickel mines are out-of-the-money, we should reasonably expect to see a large supply-side response,” said analyst Joel Crane at Morgan Stanley.

Glencore woes cast shadow over coal M&A – by Sarah McFarlane (Reuters U.S. – October 20, 2015)

October 20, 2015

http://www.reuters.com/

BARCELONA – Oct 20 Glencore’s efforts to reduce debts to turn around its share price will limit its ability to do deals on coal assets and its absence is expected to slow consolidation in the depressed sector.

As the largest shipper of thermal coal, Glencore has been omnipresent in deals concerning assets in the sector, where a glut of supply has sent prices to multi-year lows, prompting expectations for a wave of consolidation among miners.

This changed in September, however, when Glencore succumbed to shareholder pressure and announced plans to reduce its debt to $20 billion from the current $30 billion, including a share issue and asset sales.

“Glencore, if they had been financially powerful, would have accelerated the consolidation of the thermal coal industry,” a trader at a mining company said.

Glencore declined to comment on its ability to make acquisitions.