Futures & Commodities

How badly did miners suffer last year? $156B bad

The world's biggest miners lost $156 billion of their combined market value last year, according to new data, and a depressed commodity price outlook could keep the losses flowing.

Market capitalization for the top 40 miners stood at $791 billion at the end of 2014, a 16 percent drop from 2013 and a halving in value from four years ago, PwC said in a recent report.

"Miners will need to need to stay on the defensive and in lean, fighting form, as they bob and weave through a number of ongoing challenges ranging from slumping commodity prices and volatile markets, to growing pressures from government and shareholders," PWC said.

The plunge in market value follows a downturn in resource prices over the past year. Iron ore prices have sunk over 30 percent, Brent crude dropped 44 percent and among base metals, gold declined 7 percent, while platinum fell 25 percent.

Meanwhile, assets of the top 40 group declined by 1 percent in 2014, compared to an increase of 7 percent in 2013, driven by $26 billion fewer capital expenditures, the report added.

Among the 40 miners ranked, BHP Billiton, Rio Tinto, China Shenhua Energy, Glencore, and Vale were among the top five while Zhongjin Gold, Shandong Gold and China Northern Rare Earth Group were at the bottom.

Focus on iron ore

The overall market decline was driven by iron ore miners, in particular diversified companies with large exposure, PwC stated.

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The different strategies taken by iron ore majors like BHP Billiton, Rio Tinto, and Vale to combat the price slump have resulted in a glut of supply, which has sparked the ire of affected producers and governments.

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"A very public debate has ensued, leading to calls in Australia for a parliamentary inquiry into the iron ore market, amid allegations being leveled at BHP Billiton and Rio Tinto that they are driving down prices," the report said.

More gloom to come

Expectations for more price weakness and a slowdown in Chinese economic growth means the mining industry won't be turning around anytime soon, the report warned .

"Greater price volatility underscores the need for miners to develop more flexible operating strategies, adaptable mine plans including phased expansions and partial curtailments....As the old saying goes, survival will be of the fittest, and for miners also the leanest. Miners across all metals and minerals continue to focus on core operations, cost cutting, and capital discipline."

China, which accounts for 40-50 percent of global commodity demand, is rebalancing its economy towards consumer-driven growth, a major concern for the suppliers of iron ore and metallurgical coal that is used in steelmaking for infrastructure projects.

However, potential growth from other emerging economies like India could help boost demand in the long term, PwC said.