Rio Tinto, BHP Group and Vale SA, to report combined 2021 second-half earnings of US$73 billion, a drop from the US$82 billion in the first half. They have published these figures after taking cost pressures and slowing Chinese growth into account. “That’s going to be a theme: With the bumper profits that they’re enjoying, they are rewarding shareholders with dividends rather than ploughing it back into expansion,” David Bassanese, chief economist at fund manager BetaShares in Sydney, said. This, he noted suggests that there is “not a lot of confidence” for the longer-term, with uncertainty about China at the forefront of their concerns.
With China being the world’s largest metals consumer, threats to the country’s economic growth is clouding the outlook for miners. The property market of the communist superpower, which consumes almost a third of the country’s steel output, is currently cooling, with Bloomberg Intelligence projecting a 5 per cent decline in new home starts this year.
Meanwhile, the COVID-19 pandemic has been a double-edged sword for the mining sector. On one hand, trillions of dollars spent on stimulus packages ignited a record hike in demand for iron ore, aluminium, copper and other commodities, driving prices sharply higher. On the negative side of the ledger, miners are experiencing mounting cost pressures amid the global health crisis, while labour shortages are also becoming an increasing challenge for companies in the industry, for ore producers in the Pilbara region of Western Australia, in particular, where the local government maintains strict border controls.
“While commodity prices remain at or close to record highs, and the underlying performances of companies are generally robust, rising costs related to inflationary pressures are eating into operating margins at an even faster rate,” Gavin Wendt, founding director at the MineLife Pty, said. That’s “leading to disappointment in the minds of some investors,” he added.
