Despite a period of prolonged commodity price weakness, natural resources producers the world over remain committed to worsening chronic supply/demand imbalances across these markets.
So it comes as no surprise to see that shares in these businesses have taken a bruising during the past several months. Indeed, since the start of 2015 the mining and energy sectors have dominated the FTSE 100’s laggards list, with eight of the top ten losers during January-June coming from the mining, refining or energy sectors.
Leading the way was mining giant Anglo American (LSE: AAL), which dropped an eye-popping 24% during the first half and which has lost almost half its value in less than a year. Oil giant Shell (LSE: RDSB) is up next, whose stock fell 19% January-June. And diversified diggers Glencore (LSE: GLEN) and Rio Tinto (LSE: RIO) were the third and fourth worst performers on the FTSE list, the firms having shed 14% and 13% correspondingly.
Demand in the doldrums
This comes as little surprise as the steady stream of poor demand data shows no signs of abating. In particular, subdued conditions on the world’s factory floor of China continues to worry, and latest official PMI data this week showed manufacturing stagnate at 50.2 in June. The reading has lingered around the expansionary/contractionary touchstone of 50 throughout the course of 2015, raising concerns over how much more stimulus the People’s Bank of China will have to fling at the problem.
On top of this, lasting fears over the economic health of the eurozone, and consequently demand for finished goods in this imports-heavy region, could also keep pushing shares across the mining and energy sectors lower. Indeed, fears of another financial catastrophe for the world economy has been worsened by IMF warnings that Greece needs another €60m in aid and will languish under huge debts for decades to come. Much more turmoil could be on the cards, a worrying omen for the world’s drillers and pumpers.
Unwanted material keeps on rising
Despite these concerns, metal and oil volumes continue to stubbornly head through the roof. Both Anglo American and Rio Tinto are aggressively ramping up their Australian iron ore operations, for example, much to the consternation of sector peer Glencore. Although the latter is not a player in the sector, worsening fundamentals in the copper market forced prices below $5,700 per tonne to three-month lows late last month — Glencore is the third biggest producer of the red metal.
The oil market is not in a much healthier situation, either, putting Shell’s earnings profile under hefty pressure. Brent prices are beginning to duck back towards $60 per barrel again as oil pumps across the US, Russia and the OPEC block of nations remain in overdrive.
Until metals and oil producers begin to effectively address the worsening conditions affecting commodity prices, it seems obvious that shares in such companies are a sure bet to continue trekking lower.