It’s tough to really get a handle on what’s going on in the mining sector these days, what with all the extraneous events and black swans that are flying around.
In the past couple of years covid and the invasion of Ukraine have muddied the waters on what otherwise might have been a fairly clear narrative: China is growing, and the world is turning to green energy.
Those latter two facts combined look set to underpin the mining sector for years to come. But, as always, it’s vulnerable to fluctuations in the pricing of individual commodities, not to mention the vagaries of investor sentiment.
Sentiment at the moment isn’t that good - in the past week Rio Tinto and Antofagasta have both cut dividend payout levels, BHP’s profits have dropped markedly, and Anglo American’s iron ore interests in South Africa have derailed.
Analyst forecasts have been missed in all sorts of ways, as average copper and iron ore sales prices have dropped over the year, while inflation and costs have risen.
There is a sense in which the analysts should have factored all this in.
After all, inflation has been dominating headlines for months now. And didn’t commodities prices go through the roof after President Putin invaded Ukraine? The answer to that is: yes they did, but the beauty of the capitalist system is that it’s fairly efficient at finding other ways and means fairly quickly.
There was supply chain chaos, for a while. But you don’t see much of it now. Or rather you do, but not in the mining sector – today’s talk is all of cold winters and Spanish tomatoes.
What’s more, while those supply chain constraints were putting an upward pressure on prices, the world’s major customer for commodities, China, was forcing prices in the other direction.
The totalitarian approach that China continued to take towards covid throughout 2022 undoubtedly had a negative impact on demand. The Chinese economy was deliberately stifled in an attempt to stop the virus spreading.
In fact, what the Chinese government got in response to that policy was serious unrest and a virus that still hasn’t run its course through the country’s population in the way it has through virtually every other country in the world.
The Americans printed money like it was confetti, the Russians invaded Ukraine, and the Chinese shuttered their economy. For an industry that does all its business in dollars, and in which both Russia and China are major players 2022 was never going to be an easy year.
Will 2023 be any easier?
That remains to be seen.
Early signs are that it might be. To be sure, in this yoyoing world of constant crisis, that might not mean much. After all, 2021 was a bumper year as far as mining was concerned, and if 2022 was a miss, that doesn’t necessarily mean we’re going to go back to those heady days of, oh… a year ago.
On the other hand, China is opening up, global PMI numbers are mildly encouraging, the situation in Ukraine does at least seem to have stabilised, and the momentum towards green energy and the electrification of the world’s vehicle fleet continues unabated.
But the world - or at least the western world - is in a skittish mood, readily distracted by spy balloons and conspiracy theorists, by mumbling presidents and by endlessly reinventing past and present morality.
In that context it may be that future of the mining sector depends more on the ability of its masters in the west to stay sane, and less on the steadiness of demands from its customers. Note that timeanddate.com now carries a World War III countdown.
But perhaps that’s a little to apocalyptic. Perhaps all we really need is a little more ESG.