Global miners are battling to stay afloat after enduring one of the toughest years in recent times, with tumbling commodity prices and supply gluts set to force more closures and massive cuts next year, analysts say.
China’s once insatiable appetite for commodities — boosted by an unprecedented investment boom in the world’s second-largest economy — has waned, with its shift toward consumption-driven growth dampening demand.
At the same time, large producers have continued to lift output levels, which critics say is designed to flood the market and push out smaller competitors, accelerating the decline in prices.
The iron ore price sank below US$40 early this month, its lowest since May 2009, thermal coal prices are 80 percent off their 2008 peak while world oil prices have spiraled down to an eight-year low.
The sharp falls have ravaged the bottom line of miners across the world, pushing smaller players to the brink while tearing billions of revenue out of the government budgets of resources-dependent economies such as Australia.
Even major players such as London-listed Anglo-American PLC has had to slash its workforce by almost two-thirds and shut loss-making mines amid the deepening rout, while Swiss giant Glencore PLC is planning to trim its debt by cutting investment and selling assets.
“You only need to look at any share price to know it’s been an absolutely shocking year for commodity markets and for mining companies,” CLSA Ltd’s head of resources research Andrew Driscoll said.
Anglo-Australian BHP Billiton Ltd, one of the world’s largest miners, has seen its Australian share price dive by more than 40 percent this year, while stocks in rival Rio Tinto PLC have dropped by 26 percent.
Rio’s chief executive Sam Walsh said the firm’s competitors were in so much trouble that they were “hanging on by their fingernails.”
“Sooner or later the adjustment will take place,” Walsh told Bloomberg Television this month.
The slump comes on the back of a commodities supercycle over the past decade, led by China, but also fueled by other resources-hungry developing nations growing their economies at a rapid pace, which pushed prices to record levels.
However, as miners borrowed heavily and ramped up output, they overestimated the growth in demand, analysts said.
“They’ve added far too much capacity for that new, more moderate demand outlook, so we have surpluses in every commodity,” UBS AG’s commodities analyst Daniel Morgan said.
“I think it’s definitely one of the toughest years the mining industry has faced in many years,” he added, saying the woes were comparable to previous slumps sparked by the 2007-2008 global financial crisis, the 1997 Asian financial crisis and even the 1991 fall of the Soviet Union.
Goldman Sachs Group Inc said last week the iron ore sector might need to “hibernate for an extended period,” predicting that prices would stay below US$40 for three years.
The International Energy Agency said this month that “the golden age of coal in China seems to be over,” with demand slowing as the East-Asian nation turns to cleaner energy sources.
Meanwhile, OPEC recently left its output ceiling unchanged despite crashing energy prices in a move likely to further depress the market.
“We had the big party from 2005-2011, and now we are suffering the big hangover,” Breakaway Research Group’s senior resources analyst Mark Gordon said. “The so-called supercycle was a real anomaly in history, so the upward trend was an anomaly, and the downward trend is also an anomaly.”
With demand projected to soften along with China’s slowing economic growth, the adjustments have to come from the supply side, analysts said.
They said that miners have been too slow to shut operations even as their revenues and cash reserves are severely eroded, in part due to the dive in energy prices that have helped push down costs.
This means shutdowns were likely to accelerate next year as cash losses become too significant to avoid.
“I think that sets us up for some sort of supply-driven improvement in markets in the second-half of the year as sufficient supply exits, the markets rebalance and prices can start migrating up the cost curve,” Driscoll said.
“[There’s] a bit of light at the end of the tunnel but if you are a high-cost producer, if you’ve got too much debt, then things will remain very challenging,” he said.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
Thousands of parents in Singapore are furious after a Cordlife Group Ltd (康盛人生集團), a major operator of cord blood banks in Asia, irreparably damaged their children’s samples through improper handling, with some now pursuing legal action. The ongoing case, one of the worst to hit the largely untested industry, has renewed concerns over companies marketing themselves to anxious parents with mostly unproven assurances. This has implications across the region, given Cordlife’s operations in Hong Kong, Macau, Indonesia, the Philippines and India. The parents paid for years to have their infants’ cord blood stored, with the understanding that the stem cells they contained