Miners need the Asian dragon to sustain earnings

Хорошо документированные последние распродажи в акциях оставили добычи запасов привлекательными с фундаментальной точки зрения. Но инвесторы по-прежнему справедливо осторожны с учетом будущих доходов на фоне неопределенности текущей экономической ситуации. Сосредоточенное внимание на производителей товаров, ресурсов голодных стран, как Китай, импорт является одной потенциально прибыльной стратегией. Это не должно быть удивительно, что Китай ведет большую часть силы в основных материалов, но на всякий случай, диаграмма 1 показано, как железо руды и меди являются ключевыми, поскольку они оба в начале и середине этапа товаров в кривой интенсивности.У Китая, похоже, ненасытный спрос на эти товары, как видно на диаграмме 2 ниже.




This demand is primarily driven by urbanisation and industrialisation, highlighted by the Chinese social housing development plan for 20 million units (by 2015) forecast to reach its construction peak in 2013.

But there are also huge risks. China is also the world’s largest producer of iron ore (34% of global production 2010) showing both the immense quantity of iron ore that it consumes and the potential for it to be self-sufficient if/when its construction-driven boom slows.

Estimates have begun to surface that if global growth were to slow and commodity prices decrease to long-term averages, forecast earnings for 2012 may decrease in the magnitude of 25%. Further, if commodity prices were to plummet to those levels seen during the financial crisis (Q1 ’09), forecast earnings in 2012 could decrease in excess of 55%!

At present, the mining sector appears to be pricing in a price slowdown, which leaves downside risks to earnings. As a reference the worst case scenario would see copper prices decline by approx. 65% from average 2012 median forecast to the average of Q1 2009 as illustrated in chart 3 below.



The flip-side is that the producers know this too, and fresh supply plans are shelved paving the way for future structural deficits, sparking price rises. Also, miners face cost inflation driven primarily by consumables and labour along with increasingly complex geographies and heightened geopolitical risks requiring higher commodity prices to support investment decisions.

In sum, we would advocate larger mining companies with diversity across geography and commodity, see chart 4. In addition, look for companies with large, expandable, low costs assets with a solid management track record.



For now, the Asian Dragon continues to plod forward and, hopefully, without falter!

Tradingfloor