20 de agosto de 2015 / 4:53 / en 2 años

COLUMN-Glencore caution, Rio optimism over China? You decide: Russell

--Clyde Russell is a Reuters columnist. The views expressed are his own.--

By Clyde Russell

LAUNCESTON, Australia, Aug 20 (Reuters) - Take two top mining executives and ask them about China. One says he cannot fathom what’s happening in the world’s biggest commodity consumer, the other says he remains unashamedly bullish.

This isn’t an exercise to determine which executive is right and which is wrong, rather it underscores just how difficult it has become to make long-term investment decisions at the current stage of the commodity cycle.

Ivan Glasenberg, the outspoken chief executive of Glencore , was candid when presenting the London-listed miner’s 29-percent slump in first half earnings on Wednesday.

“(Commodity demand is) difficult to call at the moment with what we see in China,” Glasenberg said. “That’s the one we are all struggling to read, demand in China.”

Battling to understand the dynamics of President Xi Jinping’s “new normal” isn’t confined to Glasenberg, with views on China currently ranging from the doom and gloom of an imminent hard landing to the more benign gradual, if somewhat disorderly, transition toward a more sustainable, consumer-driven economy.

From Glencore’s perspective, what is known about China’s commodity demand this year isn’t good news, given the company’s high exposure to copper and coal.

China’s unwrought copper imports are down 9.5 percent in the first seven months of the year over the same period in 2014, although imports of ores and concentrates have gained 10.9 percent.

Glasenberg blamed short-selling in China as contributing to the 20.7 percent drop in benchmark LME copper futures from the end of last year to Wednesday’s close.

But better times may be ahead for copper and China, as infrastructure spending increases, the property sector shows signs of stabilising and a weaker yuan may boost manufacturing exports.

On coal, it’s still way too early to call a turnaround from a four-year losing streak on the back of one month’s improvements in China’s imports, which rose 25 percent in July from June but are still down 33.7 percent in the first seven months of the year.

What is becoming clearer is that coal is further along the path of market rebalancing than other commodities such as iron ore and aluminium, which are still beset by oversupply and demand growth far softer than expected several years ago when expansion decisions were being taken.

In common with other resource companies, Glencore has been cutting costs in a bid to shore up earnings and ride out the down cycle.

But Glencore’s point of differentiation with its peers is Glasenberg’s mantra that production shouldn’t be relentlessly increased, even if you have a cost advantage.

“It’s hard to predict what China is doing, as an industry we should not be increasing production in anticipation of China demand,” Glasenberg told Reuters on Wednesday.

“We will pull back our own production if necessary. Keep it in the ground, you can dig it out anytime,” he said.


This stands in contrast to Sam Walsh, the chief executive of Rio Tinto, the world’s second-largest iron ore miner.

Walsh called his company’s first-half performance “robust” even though underlying earnings fell 43 percent.

While Walsh did warn of the likelihood of lower prices for most of the commodities Rio produces, he maintained his position that the iron ore market was reaching “some sort of equilibrium” with 120 million tonnes of unprofitable output to close this year.

He also stuck to his view that the China steel story is far from over, and that the country will increase output from just over 800 million tonnes a year currently to 1 billion tonnes.

“Let me assure you that our economics department has come under great focus, thanks to all your articles and those of the press and what have you,” the Australian Financial Review quoted Walsh as saying in a call with analysts after Rio’s results presentation on Aug. 6

“They’re holding the line. They’ve done quite a bit of research and analysis, and they feel confident that the 1 billion-tonne figure will continue to hold. To achieve 1 billion tonnes of crude steel production by 2030, that’s 1 per cent growth a year. I think we’ll be all right there.”

Walsh may have some support for his view on China’s steel demand from rivals like BHP Billiton and Brazil’s Vale , but apart from them he’s cutting an increasingly lonely figure, with more analysts and China steel insiders expecting the opposite, a gradual easing in steel output.

Walsh’s optimism may yet be borne out, and certainly Rio shareholders will hope he’s correct.

In contrast, Glasenberg’s caution and willingness to leave resources in the ground until prices are more favourable may turn out to be a more successful strategy.

At the very least, investors are being offered different visions for how the future will be shaped for mining companies.

Editing by Joseph Radford

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