Market Summary for Mining Interests per JOYG 10K...
Joy Global is a supplier of mining equipment used to mine coal, copper, iron ore, oil sands and other minerals and ores. As such it has a vested interest in trying to discern the near term prospects for the mining industry. In my estimation, their projections have been spotty in the past. But I believe that their summary is an independent, good faith analysis that might interest some on this board.
The following text is derived from Joy Global’s 10K filed Dec 22, 2009 (pg 28).
Demand for mined commodities continues to be dominated by strong imports from the emerging markets, and from China and India in particular, with improving but still weak fundamentals from the industrialized countries. For the past year, China has been the major source of increased demand for commodities as it deployed a more effective stimulus program and more constructive credit policies. However, the China economy is primarily driven by exports to the United States, Europe and Japan, and continued growth in commodity demand from China requires the return of industrial production in the industrialized countries.
Industrial production outside of China has improved more recently as inventory de-stocking reaches completion. However, demand growth beyond the de-stocking effect remains sluggish. Trends in U.S. steel production can be indicative of broader industrial trends excluding China. With steel production in the United States bottoming in April, by July, extensive de-stocking had reduced steel inventories by over half. Since the completion of de-stocking, steel production has improved as sales out of production replace previous sales out of inventory. Beyond the effect of completed de-stocking, end use demand in the U.S. remains soft.
Seaborne metallurgical coal and iron ore demand remains strong as China steel production continues at high levels and imports are starting to move into other steel producing regions. Total China met coal imports were about six times higher than last year. As a result, the seaborne met coal spot market is thin, with some producers already sold out for 2010. China imports, plus an increase in global steel production have pushed met coal spot prices well above this year’s benchmark.
Iron ore is under similar demand pressure, with its spot prices above $100 per metric ton, off of a low in February.
The thermal coal outlook varies dramatically between the seaborne markets and the U.S. market. China and India are major factors in the seaborne market, with China imports already double 2008. Imports increased significantly in 2009 due to rapidly improving electricity demand and the process of restructuring small mines in the Shanxi and Heibei provinces. Much of the increase is considered structural, with the electricity generators along the southeastern coast expected to rely increasingly on imported coal to avoid rail capacity constraints and because strong domestic prices are making imports competitive. India’s coal imports also continue to increase, with some projections showing coal imports potentially quadrupling by 2014. Based on this continued strong emerging market demand, seaborne thermal coal spot prices have risen recently. Supply shortages are expected to continue, with seaborne thermal coal being contracted for 2011 and 2012 at even higher prices.
The thermal coal markets in the U.S. continue to be weak, with demand from coal-fired electricity generation down year to date. There has been some seasonal improvement, and the most recent data shows coal-fired generation up from its low in April. As a result, generator stockpiles were reduced in both tons and days in the most recent report. However, stockpiles remain at historically high levels, and will delay recovery in the U.S. thermal coal market for 12 to 18 months. On the positive side, higher natural gas forward-month prices are reducing the economic incentive to dispatch natural gas-fired plants, and 22 gigawatts of new coal-fired plants should add to thermal coal demand by 2012.
Copper demand has been increasing as China has strategically restocked, but with inventories high copper imports are expected to moderate. However, China imports are expected to remain above their import levels of 2007 and 2008. Based on a continued healthy demand from China and the expectation that demand from the rest of the world will turn positive later this year, the 2010 price forecast for copper has been revised up several times and is now well over $3.00, with the expectation of further supply shortages and price increases in 2011.
Seaborne traded commodity prices are strong and improving based on the strength of current demand from the emerging markets, the start of demand improvement from the industrialized countries, and the realization that mining will run out of excess capacity well before the industrial sector reaches its full capacity. Mining companies see the need to restart expansion projects and have been announcing significant increases in their capital expenditure budgets for 2010.
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