THE annual mining survey produced by consulting firm, PwC – ‘Mine2015’ – shows just what a kicking the world’s mining sector has received. Based on the performance of the top 40 miners by market value, their consolidated market capitalisation fell for third consecutive year in 2015.
At about $500bn, the combined market caps of the companies – consisting of BHP Billiton, Glencore, Anglo American among others – were at their lowest point since 2004, and a fraction of the $1.6 trillion recorded in 2010 – the zenith of the mineral and metals supercycle.
What’s interesting though is that the combined market values have increased in the first quarter of this year to just over $600bn raising the question as to whether the commodity market has seen the worst of the four year correction.
Andries Rossouw, a partner in PwC’s energy and mining industry assurance group, and who has co-authored Mine in the past, doesn’t think there are fundamental reasons for believing in the recovery, however.
“I think that the commodity price upswing reflects the spot mentality of traders,” he told Miningmx at the launch of the survey earlier this month. It is the restocking of Chinese buyers, and short-covering, that has temporarily raised metal prices and the equities have over-reacted.
“It’s absolutely ridiculous that mining stocks ran ahead and while I believe we have hit the bottom of the market this year, there will be some bumping along the bottom for the foreseeable future,” he added.
The message to investors is to be cautious with mining stocks which have already had a strong run this year, largely owing to the rand hedge characteristics certain gold and platinum counters have with production 100% in South Africa.
Already, there has been evidence of a pull-back in commodity prices during May which has recorded the worst performance for bulk minerals and commodities so far this year.
Copper was down 7.3% in the month, as was aluminium. Nickel retracted sharply by 10.8% while zinc was flat and was the best performing base metal to date this year. Gold declined ahead of a possible interest rate hike.
“There has been a trader mentality in China which has seen rising demand and rising stock levels [of metals],” said Tim Clark an analyst for Standard Equities. The question is whether this is linked to short-term factors such as stimulus measures in China.
“Our economists believe there is too much debt in China and they think there’ll be a slowdown,” said Clark. “Maybe not a hard landing that we have seen previously in China, but there will be declines in demand,” he said.
Kieran Daly, an analyst for UBS, also believed China was been “pulling levers”, but he thought the supercycle had well and truly been consigned to history, even were India and Africa to set upon their own heightened levels of industrialisation.
“I battle to see another significant demand event like we had in China,” he said. “India as another China? That is a very different proposition. People talk about Africa, but Africa is a collection of different countries and it’s hard to see a significant growth story,” he said.
