Commodity Super-Cycle and Decline – Page 32

With Glencore, Commodity Rout Beginning to Look Like a Crisis – by Bradley Olson (Bloomberg News – September 28, 2015)

September 28, 2015

http://www.bloomberg.com/news

The 15-month commodities free-fall is starting to resemble a full-blown crisis.

Investors are reacting to diminished demand from China and an end to the cheap-money era provided by the Federal Reserve. A Bloomberg index of commodity futures has fallen 50 percent since a 2011 high, and eight of the 10 worst performers in the Standard & Poor’s 500 Index this year are commodities-related businesses.

Now it all seems to be coming apart at once. Alcoa Inc., the biggest U.S. aluminum producer, said it would break itself into two companies amid a glut stemming from booming production. Royal Dutch Shell Plc announced it would abandon its drilling campaign in U.S. Arctic waters after spending $7 billion.

And the carnage culminated Monday with Glencore Plc, the commodities powerhouse that came to symbolize the era with its initial public offering in 2011 and bold acquisition of a rival in 2013, falling by as much as 31 percent in London trading.

Glencore slumps 30% as debt fears grow – by Lionel Laurent and Sudip Kar-Gupta (Reuters/Globe and Mail – September 28, 2015)

September 28, 2015

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

LONDON — Reuters – Glencore shares tumbled more than 30 per cent to an all-time low on Monday on fears that the mining and trading company was not doing enough to rein in its debt to withstand a prolonged fall in global metals prices.

About 3.5 billion pounds ($5.33-billion) in market value was wiped off the firm, which is in the middle of a drive to sell assets and raise cash to help cut its $30-billion debt pile and protect its credit rating after a crunch in prices of its main products, copper and coal.

Swiss-based and London-listed Glencore earlier this month raised $2.5-billion through a share placement, part of a wider plan to cut its net debt by a third by the end of 2016.

Glencore’s top individual shareholders, according to Thomson Reuters Eikon data, include CEO Ivan Glasenberg, with an 8.4 per cent stake, and Qatar Holding, with 8.2 per cent. Qatar is also a top shareholder of German auto maker Volkswagen , another beaten-up blue-chip.

Monday’s fall spread to the broader UK mining sector, which has also felt the pain from an emerging-markets slowdown and a crash in commodities prices. The FTSE 350 mining index sank to its lowest level since Dec. 2008.

Mining losing growth obsession: BlackRock’s Evy Hambro – by Paul Garvey (The Australian – September 26, 2015)

September 28, 2015

http://www.theaustralian.com.au/

The scale of BlackRock’s resources arm means the brutal retreat in mining stocks over recent years has been particularly painful.

But for Evy Hambro, whose role as the head of BlackRock’s resources unit makes him one of the mining world’s most influential voices, one piece of upside from the carnage has been a return among mining executives to the core principles and philosophies that drove the industry before boomtime exuberance crept in.

Speaking to The Weekend Australian, Mr Hambro relates a recent conversation with the chief executive of one of the world’s big mining companies.

During the boom, the executive said, the share register was invaded by “tourists” who only wanted to focus on growth, growth and growth. That singular focus over time began to creep into the company’s culture.

As a result, the company strayed from its principles, invested a lot of money in acquisitions and capex, and has been struggling with debt and regretting the move ever since.

Coal prices turn off investors – by Amanda Saunders (Sydney Morning Herald – September 25, 2015)

September 25, 2015

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

First it was tobacco, then alcohol, gambling, then asbestos. Sugar might also be on the nose for investors. But right now it is hard to find a more loathed sector than coal.

Not only are the forces of environmentalists lining up against the commodity. But there seems to be no end in sight for depressed prices.

The gas industry turned rogue on their counterparts in coal a few months ago too, attacking the industry in a bid to position itself as a cleaner source of energy.

And in a fresh kick in the guts, news broke out from the United States on Friday that Chinese President Xi Jinping was preparing to announce a cap-and-trade scheme to curb emissions as part of a climate deal with the US, ahead of climate talks in Paris in December.

China is Australia’s biggest coal customer and as China and US face off in a climate change battle, the commodity is likely to be a victim.

Copper comparison to iron ore neglects high-tech demand, OZ Minerals CEO Cole says – by Simon Evans(Sydney Morning Post – September 25, 2015)

September 25, 2015

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

Copper has been unfairly maligned by being lumped in with iron ore as the mining boom quickly evaporated, in what has been characterised too simply as a global resources rout, OZ Minerals chief executive Andrew Cole says.

Copper was a commodity of the future, which benefited from rising demand in electronics, electric cars, battery storage and industrial machinery, whereas iron ore was almost entirely dependent on Chinese demand, Mr Cole said.

“China drives iron ore and the correlation is almost one to one,” he said. But the sheer diversity of different uses for copper and the number of countries around the globe seeking it to drive hi-tech advances wasn’t being factored in by investors, he said.

“The more electric cars that are made, the higher the demand for copper.” Copper’s strong underlying fundamentals weren’t being reflected in the share prices of copper miners like the $1 billion, Adelaide-based OZ, he said.

Vale offers contrarian view of China steel output (Bloomberg/Sydney Morning Herald – September 24, 2015)

September 24, 2015

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

Vale reacted to claims steel consumption in China has peaked and, in a view that contrasts with a rising number of global banks, says demand in the top user still has some way to go.

“China’s steel consumption peak is still ahead of us but of course the growth will be much more gradual,” said Claudio Alves, Vale’s global director of ferrous marketing and sales. Vale aimed to boost its market share, he said.

The largest miners are seeking to figure out the implications of slowing growth on China’s demand for everything from iron to copper. While Vale’s view echoes outlooks from Rio Tinto and BHP Billiton, ANZ Bank brought forward its peak-steel estimate to 2014 from 2020 and Credit Suisse Group said local consumption will shrink 10 per cent by 2018. Citigroup warned on Tuesday commodities may see further losses amid excess supplies and a sluggish global economy.

“Despite the slowdown of the growth speed, China still remains the economic engine of the world,” Mr Alves said before the start of a conference in Qingdao. Further urbanisation and infrastructure projects will underpin demand for iron ore, steel, copper and other base metals, according to Alves.

Commodity nations must deal with the demise of a supercycle – by Daniel Yergin (Financial Times – September 24, 2015)

September 24, 2015

http://www.ft.com/

The writer, vice-chairman of IHS, is author of ‘The Quest: Energy, Security, and the Remaking of the Modern World’

The recent collapse in oil prices is part of a larger drama — the last act in the commodity “supercycle” that began more than a decade ago. That is why the 50 per cent fall in oil prices means not only hard times for the petroleum industry but also portends distress for commodity-exporting nations and the world economy.

The commodity boom took off in late 2003 and 2004 with the transformation of China’s role in the world economy. Following its accession to the World Trade Organisation in 2001, China was no longer just the traditional source of cheap goods, tough competition and a lid on inflation. It also became a huge market in itself.

Its voracious appetite for commodities supported the build-out of an entire country. Between 2003 and 2013, China accounted for 45 per cent of the total growth in world oil demand. Commodity producers were caught unprepared and, as they scrambled to add capacity, prices rose from $20-$25 a barrel in the early 2000s to $100 or so in 2011-2013. The conviction grew that this would go on forever.

UPDATE 1-Glencore slump spoils commodity trader appetite for IPOs – by Sarah McFarlane and Dmitry Zhdannikov (Reuters U.S. – September 23, 2015)

September 24, 2015

http://www.reuters.com/

LONDON, Sept 23 (Reuters) – Unprecedented shareholder pressure over the past six months at listed commodities firms Noble and Glencore have taught their private rivals an unforgettable lesson – think twice before going public or amassing large physical assets.

Noble’s stock is trading near its lowest since the 2008 global financial crisis and Glencore’s touched an all-time low on Tuesday due to plunging commodities prices and earnings.

“In the last two years you were possibly better off being private and not being listed, with the short sellers being so active in commodity companies,” said Karel Valken, global head of trade and commodity finance at Dutch bank Rabobank.

After the record $10 billion Glencore share offering in 2011, which turned its managers into billionaire shareholders, commodity traders had come under an unprecedented spotlight.

Even though most unlisted merchants kept insisting they saw the private model as the most appropriate for now, many market watchers said it was only a matter of time before the likes of Louis Dreyfus followed suit to raise money for expansion via listings.

Bleeding shareholders – by Kip Keen (Mineweb.com – September 22, 2015)

September 23, 2015

http://www.mineweb.com/

Freeport-McMoRan Copper & Gold may sell another $1 billion in new shares.

Diluting majors: Cut to the straight-talk please.

These announcements of voluminous dilution in the middle of a limping mining market should come with apologies. Raw admissions of what you’ve done wrong. Not bland excuses about creating shareholder value and weak markets.

Today came another good example of lame PR work.

Freeport-McMoRan noted it had completed a $1 billion round of new-share sales and added that it might raise another $1 billion doing just that again. In describing the equity raises, Freeport stated the dilution was necessary “in the current period of weak and uncertain market conditions.”

It also said what it’s doing – cutting costs, yes, but also raising cash via new shares – are meant to enhance shareholder value and protect assets for better days when they come.

SNL Official: Exploration Spending Declines With Price Of Metals (Kitco News – September 21, 2015)

September 22, 2015

http://www.kitco.com/

(Kitco News) – The amount of exploration spending for gold and other metals has declined in the last few years along with prices, said David Cox, senior sales executive for SNL Metals & Mining, during a presentation to the Denver Gold Forum Monday.

Exploration by junior-mining companies has fallen especially sharply, with a weaker equity market cutting into the amount of money these firms can raise for drilling and other work to discover new mines, he said.

The reduced exploration and capital spending have implications for the future supply of metals. “Discovery is the only way to add new resources and reserves to supply,” Cox said.

He said over the last decade, “there has been a declining rate of discoveries in the gold sector, and now that’s being exacerbated by the capital cutbacks, in particular by the majors but also junior companies are unable to raise money to do their work.”

Is it time to go for growth in metals and mining? – by Clyde Russell (Reuters U.K. – September 21, 2015)

September 22, 2015

http://uk.reuters.com/

(Reuters) – – If one was to compile a list of the biggest risk to metals and mining companies right now, it’s unlikely that planning and executing a renewed growth strategy would the top issue.

But that’s exactly the view of consultants Ernst & Young (EY), who recently produced a report highlighting the top risks for metals and mining companies in the next year, and how these have evolved since the peak of the commodity cycle in 2008.

There is obviously merit in the idea of thinking ahead and preparing for an upswing in commodity demand and prices, even if that recovery is nowhere to be seen presently and to many in the industry seems like it’s not even on the horizon.

“Pro-cyclical, short-term behaviour currently prevails, with the collective industry mindset focused on consolidation and capital returns in a low-growth environment,” EY said in the report. “But standing still is not an option: we believe now is the time to prepare for a switch to growth.”

Times tough for miners all over – by Reuters/Star Staff (Sudbury Star – September 22, 2015)

September 22, 2015

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Europe’s No. 2 copper producer Poland’s KGHM said on Monday it would put its McCreedy West copper mine in Sudbury on care and maintenance, the latest victim of sinking prices as worries about demand from China fuel the biggest market rout in years.

Copper prices plunged to six-year lows below $5,000 a tonne last month. They have since recovered to just under $5,300 a tonne, but that’s still about 18 per cent below the 2015 peak.

Also feeding the downward spiral were expectations of a small surplus this year and a larger one in 2016.

Major miners have up until recently mostly refrained from cutting production, but prices have now fallen to levels where some operations are no longer economically viable.

Mining giants Glencore and Freeport have waved the white flag and announced plans to suspend some of their copper production.

Even the stars of mining deals are sidelined in sinking market – by Eric Reguly (Globe and Mail – September 19, 2015)

September 21, 2015

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

ROME — You know that something is seriously awry in the global mining industry when the two smartest men in the room – Ivan Glasenberg and Mick Davis – are crouching under rocks. Mr. Glasenberg, CEO and co-founder of Glencore , the world’s top commodities trader, is busy whittling down a mountain of debt in the wake of the company’s submarine performance on the London Stock Exchange. Mr. Davis, the former CEO of Xstrata , launched X2 Resources a couple of years ago but has yet to do a deal.

The mining market, in other words, is moribund. No one is selling, no one is buying and values are still in retreat. If either Mr. Glasenberg or Mr. Davis were convinced the bottom had been reached, you would think they would find ways to swing back into deal-making mode, for that was what they did best.

Today’s commodities markets are not about growth; they are about survival, and the body language of the industry’s biggest players suggests that won’t change any time soon.

Mining’s long-term outlook positive as urbanisation and infrastructure development intensifies – by Simon Rees (Mining Weekly – September 18, 2015)

September 18, 2015

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

TORONTO (miningweekly.com) – The outlook for the global economy, infrastructure development and mining is not as dismal as many might believe, Deloitte global mining leader Phil Hopwood recently told an audience at the Canada-South Africa Chamber of Commerce’s seminar on infrastructure in Southern Africa.

“People talk about doom and gloom, but it isn’t all that doomy or gloomy. We can talk ourselves into corners by saying things are pretty bad,” he cautioned. “I’d say that you’ve got to focus on the long-term fundamentals and I am optimistic.”

Despite the volatile global economy, the positive drivers for metals and mineral consumption had remained in place over the long term, particularly based on developing economies that had growing rates of urbanisation.

China was important in this regard, although Hopwood also highlighted countries such as India, Indonesia, Mexico and Brazil and the volume of commodities these nations would require to build out their infrastructure on growing urbanisation rates. Countries such as Saudi Arabia were also noteworthy, achieving higher rates of urbanisation and developing large projects, including smelters.

South African Commodity Exporters Brave Rout to Protect Market – by Andre Janse Van Vuuren and Liezel Hill (Bloomberg News – September 18, 2015)

September 18, 2015

http://www.bloomberg.com/

South African miners are largely maintaining export volumes of commodities including coal and iron ore despite a pricing bloodbath in those markets, according to the head of the state-owned freight-rail and ports operator.

Transnet SOC Ltd. expects to move about 75 million metric tons of export coal and 60 million tons of iron ore on its railways in its financial year through March 31, Acting Chief Executive Officer Siyabonga Gama said. That’s largely unchanged from 76.3 million tons and 59.7 million tons in fiscal 2015. Miners have indicated they’re concerned about losing market share if output slows, Gama said.

“There is a bloodbath in the commodities market, but the extent to which we have experienced it, it is much less than what we thought might actually happen,” Gama said in an interview last week at Bloomberg’s Johannesburg office. “When I talk to the customers, some of them feel very strongly that if they responded to the market they would be squeezed out completely.”

The company had budgeted for export coal volumes of 77 million tons and 62 million tons of iron ore in the current financial year, Gama told reporters in July.