Monday, August 11, 2014
Commentary on Basic Materials (Metals & Mining) space
China is the world’s biggest consumer of iron
ore, copper and consumption of these basic materials in China (primarily) and
elsewhere globally, drives prices of these commodities. Global GDP growth is a
fair indicator of how demand and prices of these basic materials are affected. Emerging
market BRIC countries (Brazil, Russia, India and China) were on a big growth
trajectory (double-digit growth in China) earlier this decade and which has
since slowed down affecting the prices and demand for these commodities.
Here are some of the different sub-sectors and prominent players starting with the mine equipment makers: Joy Global and Caterpillar Inc. (after 2010 acquisition of Bucyrus) which supplies global miners with the necessary mining equipment. In the iron-ore space, the Australian miners BHP Billiton and Rio Tinto and Vale (Brazil) are the primary global players. Amongst copper miners, Rio Tinto controlled Turquoise Hill Resources (formerly Ivanhoe Mines) is working on a mega-project Oyu Tolgoi (in South Gobi, Mongolia) which is dubbed as having the world’s largest copper and gold deposits. In the copper mining space FCX (Freeport-McMoran Copper & Gold) is also a prominent player which currently has diversified into other areas (oil and natural gas) besides copper and gold.
A lot of these companies work in volatile areas like Africa, Asia and South America where labor and government related issues are quite common including the issues at the Grasberg copper mine in Indonesia operated by Freeport (FCX).
The coal industry has been struggling for the last few years and all the major U.S. based coal miners have been affected including the bankruptcy of Patriot Coal (PCX) and the recent restructuring of James River Coal (JRCC). New EPA regulations around emission standards for coal-fired plants operated by the electric utilities as well as competition from cheaper natural gas (which is in abundance in continental U.S.) is making it easier for utilities to convert to natural gas, affecting the coal industry.
Here are some of the different sub-sectors and prominent players starting with the mine equipment makers: Joy Global and Caterpillar Inc. (after 2010 acquisition of Bucyrus) which supplies global miners with the necessary mining equipment. In the iron-ore space, the Australian miners BHP Billiton and Rio Tinto and Vale (Brazil) are the primary global players. Amongst copper miners, Rio Tinto controlled Turquoise Hill Resources (formerly Ivanhoe Mines) is working on a mega-project Oyu Tolgoi (in South Gobi, Mongolia) which is dubbed as having the world’s largest copper and gold deposits. In the copper mining space FCX (Freeport-McMoran Copper & Gold) is also a prominent player which currently has diversified into other areas (oil and natural gas) besides copper and gold.
A lot of these companies work in volatile areas like Africa, Asia and South America where labor and government related issues are quite common including the issues at the Grasberg copper mine in Indonesia operated by Freeport (FCX).
The coal industry has been struggling for the last few years and all the major U.S. based coal miners have been affected including the bankruptcy of Patriot Coal (PCX) and the recent restructuring of James River Coal (JRCC). New EPA regulations around emission standards for coal-fired plants operated by the electric utilities as well as competition from cheaper natural gas (which is in abundance in continental U.S.) is making it easier for utilities to convert to natural gas, affecting the coal industry.
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