Fresh macroeconomic concerns caused investors in many of the Footsie’s biggest commodities producers to sprint for the exits again last week.
Dedicated copper play Antofagasta (LSE: ANTO) saw its stock pile droop 2% between last Monday and Friday, the dip prompted by a 4% share price fall in end-of-week business. The decline could be considered somewhat surprising given that copper values surged back above the $5,000 per tonne marker last week, the red metal hitting levels not seen since last November.
Meanwhile, metals and oil mammoth Vedanta Resources (LSE: VED) saw its stock value slump 7% during Monday-Friday, while Premier Oil (LSE: PMO) chalked up an eye-watering 14% decline during the period.
Murky metals
Last week’s weakness can once again be put at the doorstep of yet more poor economic data from China. Data in recent weeks has shown manufacturing output in the country sink to lows not seen since the 2008/2009 recession, a reflection of Beijing’s struggle to convert the economy to an investment-led one from the export-driven model of recent decades.
Naturally, this is continuing to fuel jitters over future commodities demand — the country is the world’s largest copper importer and second-biggest oil consumer.
Moderating Chinese commodities consumption was laid bare by Antofagasta’s full-year financials released last week. The Chilean-focussed miner saw revenues slump 34% in 2015, to $3.39bn as metal values sank. Consequently pre-tax profit plummeted 83%, to $259.4m.
Antofagasta is working hard to offset tanking revenues through self-help measures, the company achieving $245m worth of operating cost savings last year. But these are clearly no match for the extended decline in copper prices.
Crude concerns
Fears over metal markets have also dented trader appetite for Vedanta Resources, the firm being a sizeable producer of zinc, copper, aluminium and iron ore.
But like Premier Oil, Vedanta’s dependence upon the oil sector has also caused its share value shuttle to lower in recent days. Sure, Brent values may still remain above the $40 per barrel marker. However, the rapid share ascent witnessed during the past month has run out of steam thanks to OPEC and Russia failing to put production hikes on ice.
And the chronic imbalance threatening crude values was underlined by the OECD earlier this month. The economic think-tank expects global inventories to hit 3.24bn barrels in 2016, before rising to 3.3bn barrels next year.
A production cut cannot come soon enough, clearly, but this has been the case ever since Brent toppled from $115 per barrel in mid-2014. Instead, the reluctance of the world’s major producers to cede market share is preventing an accord from being rubber-stamped.
This of course leaves the likes of Premier Oil and Vedanta on dangerous ground. And with demand indicators across the raw materials segment also primed to keep on disappointing, I believe both firms — as well as Antofagasta — should be braced for prolonged share-price pain.
