Industry Trend Analysis - Weekly Mining & Projects Roundup - JAN 2015

We expect the Bloomberg World Mining Index to see continued weakness into 2015 as both industrial and precious metal prices remain lacklustre. Yet while the current test of support around 200 is indicative of bearish market sentiment, driven largely by recent steep declines in both oil and iron ore prices, we do not expect the index to return to the lows seen during the global financial crisis. Rather, we forecast further basing over the coming months on the expectation that iron ore, copper, lead, nickel, zinc, and tin prices will average higher in 2015 than end-2014 levels. Broader investor sentiment will remain subdued towards mining equities, but depressed valuations and a modest uptick in prices should spur some opportunistic buying.

Iron ore equities will remain under pressure in the coming months as weak prices take their toll on both headline revenue and profits. Global producers such as BHP Billiton, Rio Tinto, and Vale will remain profitable given their position on the bottom of the global cost curve, yet margins will face further compression, keeping investor sentiment cool. In contrast, smaller producers with higher costs are likely to face greater financial constraints in the months ahead and thus scale back or suspend production. We also expect the diversified mining index to see further weakness given its exposure to both iron ore and oil prices. In addition to the aforementioned global miners, the index is also comprised of Anglo American and Glencore Xstrata. BHP and Glencore in particular have sizable oil assets, and we recently revised down our forecasts for Brent and WTI to average USD75.0/bbl and USD71.0/bbl in 2015, respectively ( see ' Oil Below USD80/bbl To 2020 ,' December 1).

Key Development: Asia

No Return To Crisis-Era Levels
Bloomberg World Mining Index, (monthly chart)

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