Weekly Mining & Projects Roundup
We expect the Bloomberg World Mining Index to remain locked in a secular downtrend over the coming months. Despite the recent growth bounce in China, we continue to believe that the hangover effects of China's economic stimulus are yet to be felt, and cooling credit growth is likely to reveal these effects by H114 (see 'Can Reforms Prevent The Credit Hangover?', December 18, 2013). In our view, 2014 will be another disappointing year for industrial metal prices, with upside limited by healthy supply, only moderate demand growth and a stronger US dollar. Iron ore and copper prices would be most negatively affected due to the sharp slowdown in Chinese fixed asset investment and dominance of China in the seaborne market.
With the boom years in commodity prices behind us, we believe mining equities are in for a protracted period of pain. The wave of asset writedowns and divestitures that took place over the course of 2013 should continue in the coming quarters. Mining companies will be forced to reallocate their scarce capital more judiciously by focusing on the development of brownfield projects rather than greenfield mines. Amidst the capital drought and escalating cost base in the mining space, the rising tide of global asset disposal will pave the way for more mergers and acquisitions, while the gold sector undergoes rapid consolidation as a result of the meltdown in gold prices (see 'Gold To Average US$1,150/oz In 2014', December 20).
Key Development: Asia
|Bloomberg World Mining Index|