By Taras Berezowsky
(Click to expand)
As the above graph shows, total percentage returns for the huge industrial metal and raw material producers, who’d attended last week’s Reuters Metals and Mining Summit, have not really been all that hot — indeed, rather cool to cold — over the past year. Sovereign debt concerns, cooler global industrial demand, strikes, natural disasters and declining ore grades all play a role in the current metals climate.
The summit serves as a platform for these companies to come together and prognosticate, and for reporters to relate what these guys say — whether there’s much to back it up or not. If anything, though, benchmarking market activity against companies’ words and predictions could have value.
In case you missed the day-to-day reporting, let’s touch on some important announcements and news nuggets, all originally reported by Reuters, that might affect industrial metals markets and metals prices in the next year (or two, or five…)
- Rio Tinto (RIO) [-20.6% return over last 12 months] said things look pretty optimistic as far as finding buyers for parts of its aluminum business go. The aluminum market (with prices plummeting about a fifth since May 2011) has caused Rio to lose money since it dropped big bucks on Alcan, and it wants to improve its aluminum margins by focusing on its Canadian operations. Rio also has its sights on Mongolia’s Oyu Tolgoi, now that it controls the mine’s owner, Ivanhoe.
- Speaking of aluminum, Rusal (posting the worst return over the last year at -55.7%) is having trouble getting rid of its 25 percent stake in Norilsk Nickel (OTCPK:NILSY) [-26.1%]. (Norilsk, by the way, sees average nickel prices around $20,000 per ton in 2012.) Rusal still has a big debt burden, but the company “reduced cash costs to $1,950 per tonne by the end of last year…and with prices hovering near $2,200, it is accumulating cash,” said Rusal’s Head of Equity and Corporate Development Oleg Mukhamedshin. Glencore owns a minority stake in Rusal, and will continue to sell Rusal’s aluminum exports. As Mukhamedshin characterized it, “we are good partners for the long term.”
- Glencore (OTCPK:GLCNF), for its part, obviously made the biggest M&A news splash in commodity markets with its renewed takeover bid of Xstrata (OTC:XSRAY). That means other mining companies could surely follow in their M&A footsteps. “The market is reasonably conducive to M&A, other large strategic deals could provoke people to think about their own destiny,” said David Hammond, global head of metals and mining at Morgan Stanley. Another banker, Tom Massey (Citigroup’s head of metals and mining for Europe, Middle East and Africa), said, “Delaying corporate activity is not an option for some, as the best assets are getting more expensive because a lot of them have already been consumed.”
- And speaking of consuming, China of course figures into the whole picture as well. VALE (-7.7% total return) hopes to unload its new, huge Valemax vessels in China very soon, to ship greater quantities of iron ore to China faster. Tito Martins, Vale’s chief financial officer, predicted that in the next decade, China’s economy will expand by $4 trillion, even if growth slows by more than a third. He also told Reuters “iron ore prices are likely to remain above $120 a tonne in the next several years…because demand remains strong and at prices below that, Chinese producers of low-quality ore begin to lose money.”