China demands doubts cloud mood as miners balk at energy costs

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LONDON — The prospect of a global recession and doubts over economic recovery in China, the world’s largest user of commodities, add to challenges for mining companies as they grapple with rising energy costs. the risk of downsizing and layoffs.

None of the major diversified mining companies are under financial pressure after years of high commodity prices.

But major miners Rio Tinto, Anglo American and Antofagasta are among many to see lower half-year profits and lower payouts to shareholders.

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Even those whose earnings have remained strong, including BHP Group and Glencore, have signaled the risk that sluggish demand for commodities over the next few months could dampen returns.

IMF predicts that global growth could slow to 2.9 % in 2023, stalled by higher interest rates, inflation and a protracted energy crisis.

At the same time, China, the world’s second-largest economy that accounts for more than 50% of global demand for raw materials, is sticking to its strict zero-COVID policy, enforced by recurring lockdowns that are slowing production and demand.

So far it has fought back against the huge stimulus measures it introduced when China’s weak economy led to falling demand and collapsing commodity prices in 2015-2016 https: //

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“A lot of industry players seem to be betting that China will launch a big stimulus very soon,” said Jean-Sébastien Jacques, former CEO of Rio Tinto, one of the most exposed miners. demand from China, the biggest buyer of oil. its iron ore.

“But unless there is an immediate national agenda, it’s hard to see why China would launch a broad stimulus package that would benefit the world, especially against the backdrop of a fragile geopolitical environment.”


Economically interdependent, China and the West have seen relations sour this year after the Russian invasion of Ukraine began in February.

The mood deteriorated further this month after the speaker of the US House of Representatives visited Taiwan against Beijing’s wishes.

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If demand for commodities falls and drives prices down, companies may be forced to consider cutting capital spending, reviewing discretionary spending and slowing hiring, Jacques said.

The next phase would be to “restructure marginal assets that aren’t making money, aggressively downsize and, even harder, reopen supply deals,” Jacques said, referring to contracts at long term with customers that may not reflect current costs.

While miners’ profits rise or fall depending on the raw materials they produce, they are primarily penalized by higher energy costs, as their own production is not enough to power their energy-intensive operations.

The invasion of Ukraine by major energy producer Russia has driven up energy costs across much of the world, pushing inflation to the highest in decades and making the global recession even worse. more likely.

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Europe’s largest economy, Germany, is particularly vulnerable due to its heavy reliance on Russian gas supplies, which Russia has reduced as tensions with the West have risen.

Government contingency planning would include rationing supplies to industry to protect consumers and emergency services and is expected to cut production at major commodity users such as automakers Volkswagen and BMW Group.

The automotive industry 2C %20Aug%203%20(Reuters), keeping%20their%20money%20for%20the necessities. inflation reduces purchasing power.

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“The nightmare scenario would be that due to energy shortages some industries, the German automotive industry and the chemical industry for example, would be forced into extended shutdowns,” said Ian Woodley, portfolio manager at Old Mutual, which owns shares in Anglo, BHP and others.

“They are huge consumers of raw materials, which would obviously have ripple effects as well as additional impacts on a fragile supply chain.”

Energy bills have forced zinc and aluminum smelters in Italy, Norway, Slovakia, Spain and the Netherlands to shut down production, and further cuts are likely, the companies said.

“There’s no point in us producing if there aren’t automakers who want to buy parts,” Paal Kildemo, CEO of aluminum maker Norsk Hydro, said after July’s results.

(Reporting by Clara Denina; editing by Barbara Lewis)



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