Subscribe to RSS
banner

SUPPLY WORRIES CLOUD 2014 MINING OUTLOOK

2013 was a horrible year for commodities.

The Dow Jones-UBS Commodity Index, which tracks 22 commodities traded in London and on US markets, fell 9.6% in 2013, the third consecutive annual loss.

The Standard & Poor’s GSCI Spot Index of 24 raw materials showed a more modest 2.2% decline this year, but it was the fifth year in a row of losses.

Corn fell by the most last year with a 40% retreat on the back of a record US harvest, while gold’s 28% plunge was the worst performance in three decades and silver dropped 36%.

Data released by Barclays Capital in December showed that total global commodity asset values fell by a record $88 billion to $332 billion in the first 11 months of the year as investors withdrew $36.3 billion from the sector.

The value of precious metals assets under management fell by $78 billion compared to 2012 to total $119 billion, but December’s continued slide would make those numbers even uglier.

The contrast between the performance of commodities and equities is startling.

The contrast between the performance of commodities and equities is startling.

The S&P 500 rose 29.6% in 2013, the biggest annual gain since 1997, while the Dow Industrial Index notched up its 52nd record close of the year on Tuesday. The blue chip index climbed 26.5% in 2013, the best performance since 1995.

The tech-laden Nasdaq Composite ended the year its highest level since September 2000 after rising 38% over the course of 2013.

Going into 2014 few are predicting a strong rebound in the price of gold in the absence of a strong catalyst like a fresh financial or geopolitical crisis and industrial demand for silver has not been enough to support prices, but commodities as a whole could find favour again as record-setting stock markets begin to look bubbly.

This 50-year chart of the gold price vs the S&P 500 shows just how overvalued stocks in particularly the US has become.

Bloomberg quotes Jeremy Baker, commodity strategist at Harcourt Investment Consulting in Zurich as saying on top of concerns about China’s slowing growth “perceptions of improving supply and supply overhangs pressured commodities” in 2013.

Commodities are more likely to trade based on each market’s own supply-and-demand dynamics rather than investor views on the sector as a whole.”

The Wall Street Journal quotes Kevin Norrish, managing director of commodity research with Barclays in London as saying “commodities are more likely to trade based on each market’s own supply-and-demand dynamics rather than investor views on the sector as a whole.”

A glut in copper and iron ore is predicted for 2014 as South American copper giants bring new mines on stream and Australia’s iron ore output continues to grow rapidly.

While demand for copper have remained stronger than previously predicted for 2013 helping to contain the slump in the price to 7.4% for the year, the red metal is expected to come under pressure as massive new supply starts hitting the market.

For the past seven years annual supply growth has been essentially static falling to as lows as 0.4% a year in 2010 to 2011, but growth in copper mine supply should accelerate further in 2014. Greenfield projects led by the massive new Ministro Hales mine in Chile coming on stream should see supply top 6% this year and average over 4% through 2016.

The iron ore supply-demand picture is possible even more damaging to the price of the steelmaking raw material, which ended 2013 surprisingly strong at $134 a tonne, up sharply from lows of the year of $110 struck mid-year.

While Chinese iron ore imports will grow 7.4% next year, the world’s top exporter Australia will increase cargoes a whopping 22.1% to 709 million tonnes as projects by Rio Tinto (LON:RIO), Fortescue Metals Group (ASX:FMG) and BHP Billiton (LON, ASX: BHP) come on stream.

Brazil, led by world number one iron ore miner Vale (NYSE:VALE), is set to up exports 9.1% to 352 million tonnes.

India, which has seen exports fall from 120 million tonnes to close to just 11 million tonnes this year, will also re-enter the market as a self-imposed ban on exports expire and stockpiles are sold on.

Other metals are looking better for 2014.

While nickel oversupply that has persisted for years has not translated into significant cuts in production – global output is forecast to rise for the first time to over 2m tonnes in 2015, up from 1.4m tonnes in 2007 – a ban on ore exports from top producer Indonesia could turn the market on its head.

Three-months nickel on the LME fell almost 20% in 2013 to around $14,000 this week from opening levels of $17,450 a tonne but Indonesia dominates the nickel export business, accounting for 28% of global supply, and should the ban come into effect as planned from January 1 prices could rise significantly.

Zinc, lead and tin could also fare better this year as mine closures ease years of oversupply and industrial demand in developed markets recover.

Platinum group metals and specifically palladium could also benefit from an improved vehicle market in Europe and elsewhere.

Frik Els

0 comments

Add your comment

Nickname:
E-mail:
Website:
Comment:

Other articlesgo to homepage

Human Rights and Mongolia’s Small-Scale Mining Sector

Human Rights and Mongolia’s Small-Scale Mining Sector(0)

Since the collapse of the socialist regime in 1990, Mongolia’s economic development has been dependent on an expanding formal and informal mining sector that for many years had little regard for the environment. As the negative environmental implications of such rampant mining expansion became clearer, Mongolia’s government and national and international communities have put pressure

RIO’S WALSH GETS BIG BACKING FROM SHAREHOLDERS, TO STAY LONGER AS CEO

RIO’S WALSH GETS BIG BACKING FROM SHAREHOLDERS, TO STAY LONGER AS CEO(0)

Rio Tinto’s (ASX, LON, NYSE:RIO) Sam Walsh will continue as chief executive of the company beyond the end of 2015 after the mining group extended his tenure on Thursday in a move seen as an attempt to strengthen the firm’s image. The news come just two weeks after Rio rejected a merger approach from Glencore

Global unions converge in Mongolia in campaign for Rio Tinto workers’ rights

Global unions converge in Mongolia in campaign for Rio Tinto workers’ rights(0)

Leaders of IndustriALL Global Union’s Rio Tinto Network will gather in Mongolia on 22 October to plan the next moves in the worldwide campaign to improve worker rights at the mining giant. The meeting, in the Mongolian capital Ulan Bator, will bring together IndustriALL affiliates from around the world. It follows a two-day conference in

Rio Tinto share price: Group steps up pressure on Mongolia

Rio Tinto share price: Group steps up pressure on Mongolia(0)

iNVEZZ.com, Wednesday, October 22:Rio Tinto Plc (LON:RIO) has said that the $5.4 billion (£3.4 billion) underground expansion of its Oyu Tolgoi gold and copper mine is in the hands of the Mongolian government after 18 months of negotiations, The Australian has reported. As of 10:19 BST today, Rio Tinto’s share price had lost 0.94 percent

Rio Tinto has withheld $US4.2 billion needed to push ahead with giant Mongolian copper venture

Rio Tinto has withheld $US4.2 billion needed to push ahead with giant Mongolian copper venture(0)

Rio Tinto is leaving $US4.2 billion in financing needed to move forward its troubled Oyu Tolgoi project in limbo until the miner can get greater clarity from the Mongolian government. Rio copper boss Jean-Sebastien Jacques told Fairfax Media on Tuesday that the miner had not requested a formal extension to a lapsed deadline for project financing

read more
banner
banner

Contacts and information

Get informed

Mongolian Economic, Political, Social and Mining News

Social networks

Most popular categories