Miners, steel producers make adjustments to withstand weak global metal prices

In the past, ore producers turned to their downstream smelting facilities to produce high-quality metal to be sold at a higher, more decent price on the market. But the continuous decline in industrial metal prices — nickel in particular — have rendered this strategy unviable.

The Philippine producers, for instance, no longer believe in the feasibility of raising the value of metals through smelting facilities. Isidro Consunji, CEO of DMCI Mining Corp., said nickel prices should hit US$14,000 [A$19,000] per metric tonne before such a project becomes practical. Nickel prices today play around US$11,000 [A$15,000] per metric tonne.

“The problem is nickel prices are down. All commodity prices are down. At these prices, it is not viable,” Consunji told Businessworld online.

Even Amur Minerals Corporation (OTC:AMMCF) is not making hasty decisions on prioritising its smelting facility construction plans. The company announced in June that it would support its mining facility upgrades with smelting and refinery constructions. The approval of its pre-production license came amid base metals’ price decline on the global market.

Steelmakers and base metal exporters in China are improvising to resist the effects of the plummeting global metal prices. On their end, adjustments must come with a valid reason lest their customers question the sudden price hike.

“Rather than rationalise its oversupplied domestic market by closing ageing or loss-making smelters, China is exporting increasing amount of aluminium in the form of semi-manufactured products, which are eligible for tax rebates,” Neil Hume of the Financial Times wrote .

And it is quite effectual. In June, net “semi” exports rose 57 percent to 370,000 tonnes from the same month in 2014.

But some processed metal consumers are not happy with this scenario despite having a full understanding of raw commodity prices on the global market. Some say the act of “minimally processing” ore to qualify for tax leeway and get better selling prices is unacceptable.

However, economists and industry experts can do nothing but watch how miners and their customers do some “strategising” to cope with the worsening quandary. For them, a sustained metal price recovery could only happen if worries about demand growth in China subside, if not eliminated totally.

China accounts for at least 40 percent of demand in global industrial metal. But the recent stock market rout in the country has intensified the anxiety. Moreover, the soaring U.S. dollar value, unending EU-Greece crisis and weak oil prices are also preventing the metals from jumping off bearish prices.

This also explains why economists and investors are not that enthusiastic about the recent recoveries in base metals, as they know that these, as the first half of the year would prove it, are just temporary.

The upshots of price decline in metal are no longer exclusive to smaller miners. The world’s largest mining companies — BHP Billiton, Anglo American, and Rio Tinto — are also among the biggest losers in the FTSE 100 Index on Wednesday. But everyone still holds on to early predictions that things could turn upside-down like what happened in 2014, when base metals became the hottest items in the commodity market.

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