Mining companies warn of weak commodity price outlook

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Some of the world’s largest mining companies have become increasingly pessimistic about a sustained rally in global commodity prices this year after an insipid recovery in China led to a drop in first-half earnings.

Duncan Wanblad, chief executive of Anglo American, said on Thursday that an “enormous amount of economic pressure” was making it hard to wager that sustained gains in the prices of its key commodities such as iron ore, copper and steelmaking coal would take place by the end of the year.

“We’ve been a little bit surprised at how slow the opening of China has been,” he said, adding that the world’s largest metals-consuming nation was still suffering from “Covid overhangs” that had sapped demand.

In reference to when commodity prices would bottom out and rally, he added that “it’s more likely to be early next year than later this year quite honestly”.

His comments came after the FTSE 100 miner cut dividends by more than half to $700mn following a fall in first-half core earnings of just over 40 per cent to $5.1bn. This occurred off the back of a 19 per cent drop in the price of its commodities and inflationary cost pressures.

On Monday, Beijing vowed to boost consumer spending and revive the economy but fell short of announcing stimulus measures that would help manufacturing rebound, prompting a shortlived bounce in metal prices.

Citigroup analyst Wenyu Yao said that China’s politburo meeting set a “positive tone” yet it was not the sort of “bazooka-style” stimulus required to push up Chinese demand for metals in the second half of the year.

Goldman Sachs analysts said that “the industrial metals complex has been caught for much of this year between disappointing growth momentum in China, a manufacturing slowdown in the west and accelerating supply for several metals”.

But they saw enough of a shift point in China’s rhetoric to merit upgrading the bank’s six-month copper price forecast by 3 per cent to $9,500 per tonne, compared with $8,600 per tonne at present.

Mining companies have been touting the prospective boost to prices from green policies around the world since building wind farms, transmission grids and electric cars requires a lot of metals.

Simon Morris, head of base metals at CRU Group, a business intelligence company, said that a lift to demand from the clean energy transition looked unlikely to materialise as quickly as hoped, while China is unlikely to compensate given a shift in its economic model.

“Will China continue to fuel demand as it has done? No . . . China won’t be as strong a demand story as it has been for 20 years,” he said. “There’s a lot of hyperbole around the energy transition.”

Rio Tinto, the world’s largest producer of iron ore, which is used to make steel, said on Wednesday its main commodities were trading below their 2010 average prices during the first half of this year.

“We saw lower prices, in general, for our commodities, in line with slowing global demand, with the Chinese recovery predominantly led by the service sector,” the company said in its earnings release.

Chief financial officer Peter Cunningham said the future direction of iron ore prices, which are down 10 per cent since January, would depend on what happens to the “extremely soft property market” in China.

The difficult conditions were further confirmed by shares in French mining group Eramet falling 12 per cent on Thursday after it revised down its full-year earnings because of expected weakness in manganese and nickel ore prices.