Industrial Insight

Mining | May 27, 2015

http://www.thestreet.com/story/13162949/1/mining-stocks-may-be-golden-again–and-you-probably-dont-have-enough.html

But that’s all over now. BHP Billiton (BHP), Rio Tinto (RIO) and Anglo American(AAUKY), all large global companies, have now removed the key managers "who did a less-than-perfect job" during the super cycle, he adds, citing poor capital allocation decisions.

"The order of the day is to get the business right-sized," he says. Put another way, that means there’ll be a smaller supply of metals and minerals hitting the world market in the medium term.

In case you forgot, lower supply when demand remains constant tends to mean higher prices.

The wake-up call to management is also leading companies to make business plans that do not depend on prices of minerals rising. That means simply that projects are being started with an eye to a sustainable return on capital rather than what Wickwire calls "chasing production for production’s sake," as happened often during the supercycle.

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1 Comment »

  1. Business investment tanked in the first quarter, with companies forecasting a cut in spending of as much as $40 billion in the coming financial year.

    In figures that suggest the non-mining parts of the economy are still refusing to shake-off a long-standing investment strike, the Australian Bureau of Statistics reported on Thursday that new spending by business fell 4.4 per cent in three months through March from the December quarter, almost double what economists forecast.

    The dollar fell in the wake of the bleak report to US76.90¢ from around US77.50¢.

    ANZ Bank said the figures suggest non-mining investment will fall 10 per cent in 2015-16, even more than what was forecast three months ago and contrary to expectations for a recovery.

    “An improvement had been expected due to a more stable political environment during this survey period, but the ongoing weakness is indicative of a lack of business confidence,” said ANZ economist Felicity Emmett.

    The latest figures provide further evidence that the transition towards investment outside mining remains “quite some time away,” she added.

    “The RBA will be disappointed by this soft result, which provides further confirmation that rates are likely to remain on hold for an extended period.”

    Companies surveyed by the bureau said they planned to spend $104 billion in 2015-16, which is 25 per cent lower than what they tipped a year ago for the current financial year.

    Spending on buildings and structures dropped 6.5 per cent, while outlays on equipment, plant and machinery slipped 0.5 per cent from the December quarter.

    Mining investment fell 4.1 per cent, while manufacturing plunged 9.4 per cent.

    The ABS said spending for so-called “other selected industries” – which includes the sprawling services sector – fell 4.2 per cent.

    The latest capex figures are the weakest in five years and support the Reserve Bank of Australia’s decision to cut the official cash rate in February and this month.

    The government is also hoping the lack of confidence among investors will end in coming months, after using this month’s budget to increase debt to fund extra economic stimulus via the $20,000 instant asset write-off for small businesses.

    Economists are now revising their forecasts for first quarter gross domestic product figures, due out next Wednesday. Most had tipped GDP growth of around 0.5 per cent, and an annual increase of 2.5 per cent.

    “It looks like capex is going to be a bit more of a drag on GDP than we had pencilled in,” said Tom Kennedy, an economist at JPMorgan

    Comment by BRUNO — May 29, 2015 @ 11:03 am


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