As we entered the final month of 2015, what we’ve known for some time became all but cemented: 2015 will go down as one of the worst years on record for metals producers. Great news for buyers, sure, but was it ever lean to be a producer this year.
Our final MMI report of the year showed another batch of all-time low prices and not a single sub-index showed positive growth. The best any of our metals could do was hold steady. You may remember us saying something similar — all-time low prices and little, if any, upward movement in the sub-indexes — in November, October and September… and June… and March.
Commodities’ Bad Year
How bad is it? The last time raw materials like copper and oil were this cheap, an economic depression loomed. the Bloomberg Commodity Index, which tracks a wide swath of raw materials, plummeted to its weakest level since June 1999.
The last time US oil reserves were this flush with crude was 1972. What’s a major miner to do as raw materials are historically low, too? Well, If you’re Anglo American (L:AAL), this week, you announce you’ll cut jobs, sell mines and retrench. 85,000 Of Anglo American’s 135,000 workers’ jobs are on the line.
There will be less loading of iron at Anglo American mines next year. Source: Adobe Stock/nikitos77.
It’s not surprising and no one can really blame Anglo American for finally cutting jobs and production. It’s now more expensive, depending on where it’s mined, to pull iron ore out of the ground than to sell it at these prices. Alcoa's (N:AA) move to shut down smelters came from the same economic conditions.
Steel Reels
For steelmakers, it’s the worst downturn in 15 years. US steel shipments were down about 11% through the first nine months of 2015 compared with the year-ago period, according to the American Iron and Steel Institute (AISI). The industry, which employs about 150,000, has announced 12,000 layoffs the past year, the group says.
What’s most disturbing is this downturn is nothing new and it’s been afflicting producers since last year. It would be great to say that the overproduction problem and supply gluts are being curtailed and the shutdowns are having their desired effect.
Except that’s not true. So far, oversupply still exists and producers are still in the same boat. So things could, indeed, get a lot worse in 2016. Umm, happy new year?
by Jeff Yoders