Major Themes in the Mining Sector in 2015

January 5th, 2016 by

2015 was a difficult year for the mining sector on whole. The main culprit was the rout in commodities, led first by precipitous drop for crude oil that began the previous summer.

Here are some of the key trends in the mining sector that dominated the headlines during the last year.

Crude Oil Stuck in a Glut

Source: Telegraph (U.K.)

Source: Telegraph (U.K.)

Although there were a few brief rallies that momentarily helped boost oil prices, 2015 saw no real recovery for the crude oil market. A persistent worldwide supply glut has prevented prices from rebounding in any meaningful way. This was perhaps the greatest overarching development across the global economy, not just for the mining sector. Nonetheless, mining was hit directly by this development.

Another big move that impacted the oil market was the roiling of OPEC’s once-dominant hold on the market share of the global oil trade. Not only did more widespread competition force OPEC to abandon production limits (and therefore drive prices lower by adding to supply), the cartel was also shaken up by the Iran nuclear deal: Iran’s reentry into the market eats even further into the market share of individual OPEC members.

China Drags Industrial Metals

copper-smelterA persistent theme of 2015 was the slowdown and “hard landing” of the Chinese economy. After 25 years of uninhibited growth, things have naturally slowed in the People’s Republic—and this had a huge effect on demand for various industrial and energy resources. Slowing factory activity meant that the world’s largest energy consumer needed less of it while also using less of the industrial metals—copper, iron, zinc—needed in manufacturing. Therefore, mines extracting these metals (both inside and outside China) had to cut or slow production.

When it came to the Platinum Group Metals (which can also be considered industrial metals), a number of strikes in South Africa meant that very little new supply came to the market in 2015. At the same time, demand for the two metals saw a modest boost thanks to the Volkswagen diesel engine scandal. If not for these two developments, platinum and palladium prices would have fallen even further during the year.

The Dollar vs. the Mining Sector

dollar rallyIn foreign exchange, 2015 was undoubtedly the Year of the Dollar. The USD had a strong year again, continuing its gradual advance against other peer currencies. In fact, the dollar reached its highest levels in about a dozen years. Because nearly all commodities traded on the exchanges are denominated in dollars, the stronger the USD, the cheaper that commodities become.

This inverse correlation between the dollar and commodity prices was exacerbated by the fact that many of the largest mining companies are located abroad, in places like South Africa, Indonesia, and China. These companies cover their cost of operation in the local currency—so not only are they selling their metals for less, but their costs are effectively going up, as well.

The Weather Plays Spoiler

Even the climate seemed to conspire against the mining industry in 2015. The El Niño weather pattern came into effect, which is usually a period of more extreme weather conditions. This brought unusually dry conditions and a mild winter to the west coast of the Americas, while the other side of the Pacific got just the opposite: torrential rain. This caused huge problems for both regions.

While the droughts in the American West were bad for certain commodities, the downpours on the opposite side of the ocean greatly reduced agricultural productivity in Asia. Surface mining operations were especially affected, as mine tailings dams and other structures became more vulnerable to destruction.

Big Players Seek Rebound

Three of the mining industry’s biggest players each attempted to stage a bold turnaround in order to stay at the top of the pack when the sector as a whole eventually recovers.

Source: exportersindia.com

Source: exportersindia.com

Freeport-McMoRan Inc. (NYSE:FCX) has tried to weather the storm after losing three-quarters of its value over 2015.

Glencore PLC (LON:GLEN) has ambitiously attempted to restructure its debt profile to turn things around; the firm also saw its stock decline by about 70% during 2015.

Anglo American PLC (LON:AAL) was the worst loser on London’s FTSE 100 during 2015. From its high for the year in February, the company’s stock price has fallen a staggering 79.5%.

 

Looking ahead to 2016, you can find a variety of experts’ predictions for the global economy this year from The Atlantic.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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