Industry Trend Analysis - Weekly Mining & Projects Roundup - OCT 2014

We expect 2013 lows to offer significant support to the Bloomberg World Mining Index over the coming months. Industrial metal prices, notably copper, aluminium and nickel, will weaken over the next six months due to the easing of market tightness and cooling of Chinese economic growth. However, the subsequent drag on mining equities will be limited given the extent of weakness since 2011. Aggressive cost-cutting measures in the mining space will help to improve miners' bottom line and partially insulate them against further share price weakness.

We are bearish aluminium equities over a multi-quarter horizon ( see 'Bearish Aluminiu m Producers Relative To Global M iners', September 24). Aluminium equities have rallied relative to other metal producers since Q413 and now look expensive compared to previous years. Crucially, we believe both three-month LME aluminium prices and aluminium premiums will face headwinds in the coming quarters. The aluminium market will remain in structural oversupply as a result of excess production in China and the Gulf Cooperation Council (GCC).

Apart from aluminium producers, the outlook for coal miners is also grim. US coal miners will continue to suffer from sluggish domestic demand and tighter environmental regulations ( see 'Coal: Long-Term Industry Decline Continues', August 15). Elsewhere, in Australia coal miners will remain under pressure from a persistent supply glut in the seaborne market. Profit margins from mining operations will remain subdued over the next two years as thermal coal prices struggle to make substantive gains ( see 'Thermal Coal To Average USD 74/tonne In 2015', August 19). Meanwhile, the consolidation push in China will force more domestic miners, particularly the smaller players, out of business.

Big Support At 200
Bloomberg World Mining Index (Weekly)

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