Commodities Slowdown Won’t Last: Mining CEOs
The slump in metal prices this year as demand falls amid a moribund global economy does not have global mining firms worried, with Fortescue Metals, Anglogold Ashanti and Rio Tinto all saying on Wednesday that the long-term prospects for commodities remain intact.
Prices for key commodities such as copper and iron ore have all retreated this year – copper prices, for instance, have fallen 14 percent since the start of the year.
“Financially, things are tough in the short term, (there’s) not a lot of liquidity and funding for new projects. But at the end of the day, the outlook on a long-term basis is still very, very good,” Mark Cutifani, CEO of Anglogold Ashanti , the world’s third-largest producer of gold, told CNBC Asia’s “Squawk Box”on Wednesday.
“The most important thing we have to remember is that the world is short of commodities and so for the mining industry, that’s good news for the long term,” he said.
The challenges facing the commodities industry, according to Cutifani, include getting access to “new ground,” or unexplored terrain, which is becoming increasingly difficult, and that means new sources of metals will be scarce.
His optimism for the long-term outlook was shared by the CEO of Australia’s Fortescue , Nev Power, who added that there are signs that demand from China, Europe and U.S. appears to be picking up.
“June was a very strong month for us and we are continuing to sell all of the ore we produce and those export numbers will increase again through August and September,” Power told CNBC. “The continuing news that we see coming out of Europe and the U.S. indicates some stability coming back into those markets, which I think is a good sign.”
He expects strong demand for iron ore, the main ingredient in steel, over the medium and longer term, adding that the “dip” that the industry is going through at the moment won’t be “very long-lived”. He blamed recent iron-ore price weakness on overproduction by Chinese steel mills, but noted that those mils are starting to cut production so output will return to normal soon.
Benchmark iron ore with 62 percent iron content has slipped to $116.60 per metric ton from a peak 2012 peak of $147 per metric ton, according to Steel Index, a provider of commodity prices.
Rio Tinto: China Will Improve
Rio Tinto , the world’s largest mining company and second-biggest iron-ore producer, agreed with the view that the outlook for commodities would improve in the second half of the year.
The Australian miner said on Wednesday that its first-half net underlying earnings fell 34 percent to $5.2 billion from a year earlier because of lower iron ore prices. It added, however, that longer-term demand, including from China, should remain strong.
“We expect to see signs of improvements in Chinese economic activities by the end of the year, with growth picking up more strongly as government stimulus measures announced in the second quarter begin to flow through to infrastructure investment,” Rio’s CEO Tom Albanese said in a statement on Wednesday.
However, Gaurav Sodhi, Resources Analyst at Intelligent Investor magazine, is not as bullish and cautions that several metals are facing oversupply. Coal stockpiles in China, for example, continue to build.
“It’s really the supply side of the coal story that looks really scary,” Sodhi told CNBC. “We’ve certainly been recommending people leave coal equities and just stay out of the coal market because lower prices are certainly possible. And then, that’s also the same for other commodities as well. I would argue that for iron ore. I think iron ore stockpiles are rising.
There’s plenty of new supply coming, so investors should look cautiously at the iron market too,” he added.
China also appears to be slowing more “markedly” than official data indicate, Sodhi said, warning that a lot of uncertainties remain.
- By CNBC's Jean Chua.