For Immediate Release
Chicago, IL – December 24, 2015 – Today, Zacks Equity Research discusses the Industrial Metals, part 1, including BHP Billiton Ltd. (BHP), Rio Tinto plc (RIO), Vale S.A. (VALE), Alcoa Inc. (AA) and Freeport-McMoRan Inc. (FCX).
Industry: Industrial Metals, part 1
Link: https://www.zacks.com/commentary/65748/industrial-metals-stock-outlook---jan-2016
2015 will go down in history as one of the worst years for industrial metals, which are trading near their multiyear lows. The slowest pace of economic growth in 25 years in China, the world’s top metals consumer, has dragged the industrial metals market along with it.
Moreover, the interest rate hike gave a boost to the dollar, which makes dollar-denominated commodities like base metals expensive, bringing them lower. To stay afloat, mining companies have been cutting costs, slashing dividends and production, and selling assets.
Iron
Iron ore prices have been in a free fall, losing 43% so far this year. This was due to a weaker Chinese steel market and surging supplies from big miners like BHP Billiton Ltd. (BHP), Rio Tinto plc (RIO) and Vale S.A. (VALE). Prices of the metal sank below the level of $40 in December for the first time since spot prices were introduced in 2008.
BHP Billiton posted its worst underlying profit in a decade, Vale reported a loss per share of 19 cents for the third quarter while Rio Tinto suffered an unceremonious drop of 42.9% in underlying earnings for the first half of fiscal 2015. Macroeconomic issues such as the recession in China, Greece debt negotiations and weak prices of commodities in the global mining industry were responsible for dismal results across the board.
Notwithstanding low prices, Vale reported record iron ore production in the third quarter and aspires to mine between 340 million and 350 million metric tons of iron next year. BHP Billiton’s iron ore production for the September quarter increased 7% to a record 61 metric tons and its guidance for fiscal 2016 remains at 247 metric tons. Rio Tinto hiked its production in the quarter by 12% and expects to ship around 340 million tons of iron from its operations in Australia and Canada.
Aluminum
Falling oil prices took a toll on aluminum prices as the metal belongs to an energy intensive industry. Further, growing exports from China and oversupply in different regions exerted pressure on aluminum prices. In the third quarter, London Metals Exchange (“LME”) aluminium price tumbled to a six-year low of $1,589 per ton.
Alcoa Inc.’s (AA) profits for the third quarter sank roughly 70% year over year while Russian aluminium giant RUSAL reported an 11% drop in third-quarter core earnings, hurt by lower metal prices. Alcoa reiterated its expectation of 6.5% global aluminum demand growth for 2015. RUSAL cut its 2015 demand growth forecast to 5.6% due to weaker-than-expected demand in some emerging markets.
The aluminum price rout has also triggered Alcoa’s move to separate its smelting and refining business from those that cater to rapidly growing aerospace and automotive markets. The transaction, which is subject to specific conditions including final approval by Alcoa’s board, is expected to close in second-half 2016.
Copper
Concerns about Chinese economic growth rates, apprehensions surrounding Europe, continued U.S. dollar strength and weakness in commodity prices put pressure on copper prices during 2015. Demand in China, which accounts for over 45% of copper consumption, has been affected by soft export demand for electronics, a weak construction market and slow progress on implementing investment in electric grid infrastructure. Copper prices are hovering around its worst levels since 2009.
After suffering its third straight quarterly loss, copper miner, Freeport-McMoRan Inc. (FCX), announced plans to defer investments in various long-term projects and also trimmed capital spending to $1.8 billion in 2016 and $1.2 billion in 2017. Moreover, Freeport has suspended its annual dividend to save cash amid a weak commodity price environment.
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