The global commodities rout has just extended into a sixth year and for the metals industry 2015 was perhaps the most painful year of all. Prices approached decade lows, erasing most if not all of the gains during the so-called super cycle that started in 2003, and fears grew that China won’t engineer a soft landing of its economy.
In an average index of base metals started in 1979, 2015’s decline was the third-worst on record, according to Moody’s. At a company level, the deadly dam spillage at BHP Billiton and Vale SA’s Samarco iron ore mining operation in Brazil
in December darkened the outlook for all miners in the region. Global giants such as Anglo American and Glencore saw billions of dollars erased from their market values over debt concerns, raising question marks over big projects they are developing in Chile and Peru. Smaller, higher cost producers disappeared and a junior exploration industry starved of capital diminished in size.
The extent of the rout has led the market to predict metals prices are approaching a bottom. Blackstone Group director Byron Wein predicted in his annual, often-cited year-end list of surprises for the world economy that the sell-off in industrial metals and agriculture will reach a conclusion this year, a hint that metals will decouple from the swoon in oil prices. Recent surges in China’s unwrought copper imports have helped to ease fears that the crisis in the country’s equity market is disrupting copper demand.
In the BNamericas Mining Survey for 2016 the survey’s 99 participants appeared to be cautiously optimistic about the outlook for metals prices. Fewer participants predicted price declines than a year earlier, while more predicted that prices will stay to current levels. The survey hinted slightly more optimism about gold and silver than copper and iron ore. Following the trend for last year’s survey, there are some aspects of the sell-off that are favorable to solvent producers. Project costs are declining and some jurisdictions are working hard to attract new investment, notably Mauricio Macri’s newly elected Argentine government that heralds a new chapter for the country endowed with similar copper and gold deposits to Chile.
The BNamericas 2016 survey underscores the tougher operating environment in Peru, in light of deadly con icts with local communities, speci cally in MMG Ltd.’s Las Bambas copper mine and the opposition to Southern Copper’s Tia Maria project. Peru, the winner of the country with the best investment climate in last year’s survey, was edged by Chile in this year’s result.