More pain for commodity stocks

COMMODITY stocks, including Kumba Iron Ore and Impala Platinum, yesterday dropped to multiyear lows as metal prices tumbled.

Kumba Iron Ore, a unit of London-based Anglo American, dropped as much as 7.1% to a record low.

Royal Bafokeng Platinum was the biggest loser on the FTSE/JSE Africa all share index, declining as much as 11% to a record low.

AngloGold Ashanti also slid to its lowest price.

All but one of the 14 most active securities trading at 52week lows on the JSE were resource-related.

Commodity prices have slumped to near their weakest levels in 13 years with excess supplies emerging in everything from oil to metals and crops.

The dollar, near the highest levels since March, is making raw materials more expensive for buyers in other currencies, while angst over China’s slowing economy has compounded woes for resources.

“The commodities slump will be prolonged as long as there’s dollar strength,” Rob Pietropaolo, a trader at Vunani Private Clients, said.

“There’s an oil glut, a platinum glut, a steel glut and there’s no inflation to counter gold.

“Everything together, if you take the slowdown and the stronger dollar, bodes very badly for commodities in the medium to long term. You need growth for commodities to go up.”

Reuters reported yesterday that the coal price’s downward trajectory showed no sign of reversing as a supply glut, com- bined with expectations that demand from top consumer China would shrink more, painted a bleak outlook for the fossil fuel, which generates nearly half the world’s electricity.

Global coal prices have fallen by about 10% this year, bringing pain to top producers, including SA. They now stand at their lowest in nearly a decade, extending losses from a bearish trend since 2011, as incremental growth in supply has outstripped demand.

The falling prices could benefit emerging economies relying on coal as a cheap form of power.

However, political pressure is growing to curb greenhouse gas emissions from coal-fired power stations before United Nations climate change talks in Paris at the end of the year.

The biggest problem coal has faced this year has been China, where imports between January and June were down 37.5% from a year earlier.

China’s drive to cut imports is environmentally driven, while also being motivated by a desire to help domestic producers.

“China has invested on incre- mental coal production on the basis of the very high prices they were having in the domestic market a few years ago and that is coming on stream at the same time, so they’re swamped in coal, which has caused a collapse in domestic pricing,” a mining industry source said.

“The view for the second half of the year could be quite dire,” the source said.

China’s energy consumption tripled in just two decades, but growth slowed to 0.7% year on year in the first half of this year.

In terms of power generation, coal lost market share to increased oil, natural gas and renewables.

Everything … bodes very badly for commodities in the medium to long term. You need growth for commodities to go up