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WSJ: Anglo’s CEO Predicts Deepening Metals Slump

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From: Anglo’s CEO Predicts Deepening Metals Slump (WSJ)

By: Scott Patterson & Alex MacDonald

Anglo American PLC Chief Executive Mark Cutifani doesn’t think so, saying Monday that 2016 is set to be even more difficult for mining companies and commodity markets than 2015. To put that in perspective, copper and iron-ore prices fell 25% and 40% respectively in 2015, and Anglo’s share price dived 75%.

“Opinions are divided on whether we have reached the bottom of the cycle,” Mr. Cutifani said during a speech at the Investing in African Mining Indaba conference in Cape Town, South Africa. “So things may still get worse before they get better.”

Mr. Cutifani’s downbeat mood was broadly shared at Mining Indaba, an annual conference that draws much of the mining world’s elite. Executives, investors and analysts said they don’t believe a recent rally in metal prices and mining companies’ shares will last.

Anglo shares are up more than 15% this year, while Swiss mining and trading company Glencore PLC has risen more than 8%. Prices for copper — used in power-transmission lines, skyscrapers and appliances — have increased 6% since hitting $4,325.50 a metric ton on Jan. 15, their lowest price in six years.

But a host of analysts agree with Mr. Cutifani. Several have said in recent notes that the rally has been fueled primarily by the U.S. dollar weakening against other currencies. This makes it cheaper for foreign buyers to purchase commodities that typically are priced in dollars, but analysts say it doesn’t represent a fundamental shift for mining companies.

In a weekly Citigroup poll, the bank said 93% of respondents believe Anglo’s share price hasn’t bottomed out. Meanwhile, 71% of respondents said they remain bearish about the six-month mining-sector outlook and 14% said they remain bullish.

The bank didn’t disclose how many investors participated in the poll.

“Such episodes of sharp corrections in prices tend to ignite the question of whether we are witnessing the reversal of the downtrend,” said J.P. Morgan Chase & Co. analysts in a note on Friday. “In this instance, we believe the answer to be no.”

The slump has been a long, downhill slide for mining companies that ramped up spending and production a decade ago, when Chinese demand for industrial metals was soaring. During the past 2 1/2 years, China’s economy has cooled, growing at 6.9% in 2015, its slowest annual growth in a quarter-century.

Now, companies are paying the price for all the production launched when the market was hot, some executives said.

“The challenge for industry is not demand, it’s excess supply, and it needs to leave the market to create a long-term sustainable future,” said Graham Kerr, the CEO of South 32 Ltd., a miner of coal, aluminum and manganese.

Anglo has been among the companies hardest-hit by low prices. Mr. Cutifani said commodity prices have fallen about half a percentage point every month since he took over the company about three years ago.

The slump in prices has deprived Anglo of roughly $350 million in revenue a month, he said. “It’s a big number,” said Mr. Cutifani, whose company is scheduled to report its half-year results next week.

Anglo rolled out a restructuring plan last December involving the elimination of 85,000 jobs.

Mr. Cutifani said Monday that Anglo has already reduced costs about 30%, but “we need to do a lot more.”

The problems confronting Anglo were highlighted Monday, with the company’s platinum-mining unit swinging into the red in 2015 on impairment charges and restructuring costs amid low platinum-group metal prices.

Copyright (c) 2016 Dow Jones & Company, Inc.

S.A. StevensonWSJ: Anglo’s CEO Predicts Deepening Metals Slump

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