Home > Market change > Bulk offers miners some relief

Bulk offers miners some relief

September 23, 2011

“The London Metal Exchange, where copper, aluminium, zinc, nickel, lead and tin change hands, is providing minute-by-minute insight to the subsequent share price moves of large mining companies. With LME metals in free fall, the shares of companies such as BHP Billiton, the world’s largest miner by market capitalisation, have followed.

With copper down 8.6 per cent and nickel a hefty 17.5 per cent on Thursday, extending big losses earlier on the week, it is understandable why miners’ shares are tumbling. More could come if LME prices continue to drop, as they are in early Friday trading. But that exclusive focus on LME metals ignores the real cash-cows of the mining sector: iron ore, thermal coal and coking coal. Prices are holding rather well this week.”

Source: Financial Times, September 23 2011

Observations:

  • For London-listed miners the LME-metals account for 33% of earnings, with 53% from iron ore and coal (thermal and metallurgical).
  • Nearly all commodities lost 5% or more of their value in the spot market on Thursday and Friday.

Implications:

  • Falling commodity prices signal doubt about continued economic growth is starting to affect traders, despite miner’s comments that demand is staying strong. The falling premium of lump ore over fines confirms the view that we might be past the peak of prices.
  • Miners will need to decide again about hedging (part of) their production to benefit longer from high prices. Long term supply contracts for bulk materials do serve as a sort of hedge, but metals-prices could also be hedged using derivatives.

©2011 | Wilfred Visser | thebusinessofmining.com

Advertisements
%d bloggers like this: