China demand doubts darken mood as miners baulk at energy costs



By Clara Denina

LONDON, Aug 19 (Reuters) - The prospect of a global recession and doubts over economic stimulus in China, the world's biggest user of raw materials, add to the challenges of mining companies as they grapple with energy costs, raising the risk of downsizing and layoffs.

None of the major diversified miners is under financial strain after years of strong commodity prices.

But leading miners Rio Tinto RIO.L RIO.AX , Anglo American AAL.L and Antofagasta ANTO.L are among many to have posted a fall in half-year earnings and lowered shareholder payouts.

Even those whose profits stayed high, including BHP Group BHP.AX and Glencore GLEN.L , flagged the risk sluggish commodity demand over the coming months could lower returns.

The IMF forecast Link that global growth could slow to 2.9% in 2023, stalled by higher interest rates, inflation and a prolonged energy crisis.

At the same time, China, the world's second biggest economy that accounts for more than 50% of global demand for raw materials, is sticking to its strict zero-COVID policy, enforced by recurrent lockdowns that slow output and demand.

So far, it has fought shy of the huge amounts of stimulus it introduced when Chinese economic weakness led to a drop in demand and a commodity price crash in 2015-6 Link

"Many industry players seem to be banking on the fact that China will launch a big stimulus package very soon," said Jean-Sebastian Jacques, former CEO of Rio Tinto, one of the miners most exposed to demand from China, the leading buyer of its iron ore.

"But unless there is an immediate domestic agenda, it is difficult to see why China would launch a large stimulus package that would benefit the world especially in the context of a fragile geopolitical environment."

DARKENING MOOD

Economically interdependent, China and the West saw their relations worsen this year after Russia's invasion of Ukraine began in February.

The mood deteriorated further this month after the U.S. House of Representatives Speaker's visit to Taiwan against Beijing's wishes.

If commodity demand falls and lowers prices, companies could be forced to consider reducing capex, review discretionary spending and slow recruitment, Jacques said.

The next phase would be "restructuring marginal assets that are not making money, be aggressive on headcount reduction and, even more difficult, reopening supply agreements," Jacques said, referring to long-term contracts with clients that may not reflect current costs.

While the miners' profits rise or fall in line with the raw materials they produce, they are mostly punished by higher costs for energy as their own production is not enough to fuel their energy-intensive operations.

The invasion of Ukraine by leading energy producer Russia has driven energy costs for most of the world, pushing inflation to the highest in decades and making global recession ever more likely.

Europe's biggest economy Germany is especially vulnerable because of its high dependence on Russian gas supplies, which Russia has reduced as tensions with the West have risen.

The government's emergency planning would include rationing supplies to industry to protect consumers and emergency services and would be expected to reduce production at major commodity users such as automakers Volkswagen VOWG_p.DE and BMW Group BMWG.DE .

The auto industry Link(Reuters),keeping%20their%20cash%20for%20necessities.&text=Waiting%20times%20on%20new%20orders,as%20order%20books%20thin%20out is already reporting signs of lower consumer demand as inflation cuts spending power.

"The nightmare scenario would be that due to the energy shortages, some industries, the German car industry and chemical industry for example, are forced to take extended shutdowns," said Ian Woodley, portfolio manager at Old Mutual, which holds shares in Anglo, BHP and others.

"These are huge consumers of commodities, so that would obviously have kick-on effects as well as further impacts on a shaky supply chain."

Energy bills have forced zinc and aluminium smelters in Italy, Norway, Slovakia, Spain and the Netherlands to halt production, and more cutbacks are likely, companies have said.

"There is no point in us producing if there are no automotive producers that want to buy parts," Paal Kildemo, CEO of aluminium maker Norsk Hydro NHY.OL said after earnings in July.



UPDATE 1-China to use effective investment, not flood-like
stimulus, to boost economy: state media - Reuters

UPDATE 3-As German gas rationing looms, industry begs exemptions
- Reuters News

Nyrstar's shut Dutch smelter invigorates zinc bulls - Reuters News

UPDATE 3-Norsk Hydro offers extra dividend, buybacks despite uncertainty ahead - Reuters News



Reporting by Clara Denina; editing by Barbara Lewis

免責聲明: XM Group提供線上交易平台的登入和執行服務,允許個人查看和/或使用網站所提供的內容,但不進行任何更改或擴展其服務和訪問權限,並受以下條款與條例約束:(i)條款與條例;(ii)風險提示;(iii)完全免責聲明。網站內部所提供的所有資訊,僅限於一般資訊用途。請注意,我們所有的線上交易平台內容並不構成,也不被視為進入金融市場交易的邀約或邀請 。金融市場交易會對您的投資帶來重大風險。

所有缐上交易平台所發佈的資料,僅適用於教育/資訊類用途,不包含也不應被視爲適用於金融、投資稅或交易相關諮詢和建議,或是交易價格紀錄,或是任何金融商品或非應邀途徑的金融相關優惠的交易邀約或邀請。

本網站的所有XM和第三方所提供的内容,包括意見、新聞、研究、分析、價格其他資訊和第三方網站鏈接,皆爲‘按原狀’,並作爲一般市場評論所提供,而非投資建議。請理解和接受,所有被歸類為投資研究範圍的相關内容,並非爲了促進投資研究獨立性,而根據法律要求所編寫,而是被視爲符合營銷傳播相關法律與法規所編寫的内容。請確保您已詳讀並完全理解我們的非獨立投資研究提示和風險提示資訊,相關詳情請點擊 這裡查看。

我們運用 cookies 提供您最佳之網頁使用經驗。更改您的cookie 設定跟詳情。

風險提示:您的資金存在風險。槓桿商品並不適合所有客戶。請詳細閱讀我們的風險聲明