Home/Blog/Trading Ideas/Metals Miners Wave the White Flag

Metals Miners Wave the White Flag

8 August 2012 in Trading Ideas

The world’s miners of precious and industrial metals may have seen enough.

With global economies appearing to enter slowdown, and a second straight year of falling prices, metals conglomerates are starting to dial back their plans to spend millions of dollars on huge new projects.

Anglo-Swiss miner Xstrata announced on Tuesday that it would defer $1 billion in capital spending plans in 2012 after its first-half earnings fell 31% from a week ago.

Last Friday, British firm Anglo-American said it would cut its capital spending by 21%, or $1.5 billion. Cutting through the corporate-speak, Anglo CEO Cynthia Carroll told the Wall Street Journal, “We can’t just sit back and hope that things are going to improve tomorrow.”

Aside from the impact of Europe’s sovereign-debt crisis that has hit consumption there, a slowdown in China is proving  even more significant, as that country had been a huge driver of commodity price runups after the last recession.

From its recent peak in early 2011, the Dow Jones-UBS Industrial Metals Index has fallen by one-third as precious and industrial metals like aluminum, gold, nickel, platinum and steel have suffered from lowered demand.

The Journal also cites the near-term/long-term conundrum facing the mining industry with curtailed spending. Over the short-term, less investment can hurt related industries as well as local economies. In the future, however, the risk is that industry may have pulled back too much, which could cause industrial-metals shortages and potentially causing price jumps when supply falls significantly below demand.