The mining sector will soon see its good times as demand is exceeding supply and price recovery is not very far. According to mining major Glencore, the trend is led by zinc and other industrial metals.
“Record low sector margins are setting the scene for the next price upswing.”
“Structural deficits are returning, led by zinc,” Glencore said in a presentation posted on its website on the occasion of the mining conference in Miami.
Noting that capital expenditures by top five producers have fallen to $24 billion in 2016 from a peak of $71 billion in 2012, Glencore underscored that the current investment is insufficient to meet the emerging demand over the medium term.
Glencore’s somewhat positive outlook comes after the scenario of oversupply and falling prices in the last three years. BHP Billiton has said it will not wait for price recovery to start capital investments in copper and oil.
Glencore’s optimism is not fully shared by all mining CEOs. Tom Albanese of Vedanta Ltd. said the worst may be over for commodities, Rio Tinto Group’s Sam Walsh said: “calling the bottom is brave.”
“Markets remain oversupplied, sentiment cautious and we expect a period of prolonged lower commodity prices and volatility,” noted Andrew Mackenzie, CEO of BHP in Miami.
Meanwhile, Glencore Chief Executive Officer Ivan Glasenberg urged the mining industry to learn from past mistakes especially the splurging of $1 trillion in the expansion that left the world filled with metals.
He called for a realistic growth strategy that will ensure cash flows and earnings not mere digging up of millions of tons.
In a presentation at Bank of America Merrill Lynch mining conference in Miami, Glasenberg said profit can be improved by imbibing the lessons of past 12 years when mining companies pumped cash to boost production from copper to iron ore.
“Accept that volume growth cannot be an end in itself,” according to Glencore’s presentation “Recipe for Better Returns.”
The report in Bloomberg said Glencore’s criticism was an open indictment of the debt-fueled investment in mining that led to a massive oversupply of commodities compounded by the slowdown in Chinese economy and price crash.