Top 10 Mining Investor Questions for 2013

By Roger Baettig | December 06 2012 11:14 AM

REUTERS

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The global metals and mining environment will likely be unfavorable in the coming year given the oversupply arising from this year’s global downturn but trends are seen improving at least for gold and copper miners, according to global credit watcher Standard & Poor’s.

The report, titled “Top 10 Investor Questions for 2013: Global Metals and Mining,” discussed the 2013 outlook for the iron ore, steel, coal and aluminum markets. It also explored the rating implications of a potential slowdown in China’s economy on issuers, as well as expectations for mergers and acquisitions, capital expenditure and assets sales in the metals and mining sectors for next year.

“Our overall rating outlook for global metals and mining companies has become more negative,” said the S&P report. “We currently expect sluggish performance among steel and aluminum producers over the next year and see little impetus for improvement among coal producers. However, we believe credit trends will be more favorable for gold and copper miners.”

S&P’s generally cautious view on the global metals and mining sector for next year reflects pricing pressures resulting from oversupply given this year’s still-sluggish global economic growth.

“Simply put, many metals and mineral prices are depressed. For example, thermal coal prices are weak in the US—and have been weakening elsewhere—and metallurgical (met) coal and steel prices have suffered because of global overcapacity, particularly in light of China’s economic slowdown. We expect many of these trends to continue into 2013,” the report said.

As the US economy believed to be in a relatively “bright” spot, having improved gradually since the 2008 and 2009 recession, S&P said this might lead to improved demand and eventually improving pricing for companies that usually benefited from a strong presence in the US market. But S&P is less optimistic about Europe, estimating that European gross domestic product would be flat in 2013 and the probability of recession would be about 40 percent.

In addition, while S&P economists are projecting a “soft landing” in China—which it expects to post a GDP growth of around 7.5 percent in 2012 and 8 percent in 2013—the credit watcher said a steeper slowdown in China could exert more pressure on metals and mining prices.

On the other hand, the lingering global uncertainty is seen to keep global prices high.

S&P also believes that copper, “which has relatively favorable supply characteristics, will enjoy reasonably strong pricing over the next year.”

Meanwhile, S&P said the oversupply of steel in China was not only of global concern, but also posed a significant risk to the regional steel sector in Asia and to producers of seaborne iron ore and metallurgical coal.

“We maintain our negative outlook on the steel sector in Asia. However, we are seeing some signs of price stability and improved demand which, if sustained, could change our negative outlook to stable within the next quarter,” S&P said.

Economist and Hedge Fund Manager Shayne Heffernan of www.livetradingnews.com takes remains a buyer on Irom Ore

Iron Ore has been a bumpy ride over the last few years, 2011 iron ore prices that averaged more than $US150 a tonne and peaked at more than $US180 a tonne.

This year they moved to $US130 a tonne, and then scared the mining world when they went below $US90 a tonne at the end of August.

In 2013 we expect to see $160 as they high and $140 as the average.(full story)