We’ve well and truly moved through the looking glass here.
This year has started as one of the worst for commodities in a long, with the Bloomberg Commodities Index kicking off at its lowest point, while metals such as iron ore, nickel, and copper all plunge to new depths.
The coverage of returns for 22 different materials fell four per cent.
Much of this has been driven by the Chinese implosion, as the country devalued its currency and experienced a sharp sharemarket decline; the nation’s markets were also unable to halt the tide of capital flowing out.
This has had a massive impact on mining and commodity prices, which rely heavily on ongoing Chinese demand, and are being negatively affected by continuing uncertainty in the country.
Of course, this has had a massive flow on effect for the operators.
BHP, Anglo American, and Vale were the worst hit, with BHP falling to a decade low share price, slipping below its $15 per share low watermark.
Billions are being wiped off the sharemarket, and the likelihood of much of this financial strength returning is close to nil for most miners.
We have even apparently reached peak gold, with miners themselves and not just the market, predicting production rates to decline anywhere from three to 15 per cent in the coming years.
Yet, in the face of all of this the Federal Government has predicted mining exports earnings to grow by more than 40 per cent by 2019-2020.
The release of the Department of Industry, Innovation and Science Resources and Energy Quarterly report in the December quarter showed the mining sector’s contribution to the GDP over the past decade had increased from six to nine per cent, an upswing of 50 per cent.
The department expects resources and energy earnings of $166 billion in 2015-16, down on the previous year by four per cent due to lower commodity prices.
Chief economist Mark Cully said the low price conditions that characterised 2015 were forecast to persist in the short term, and that any prospect of recovery in that time frame was limited.
“On the home front, Australia’s production of most commodities has continued to increase despite lower prices,” he said.
“The rapid increase in mining output is expected to underpin the production phase of the boom and provide some support to export earnings.
“However, the increase in volumes is unlikely to be sufficient to offset the effect of lower commodity prices across the board.”
Mining has entered a strange new era, where the success of the last few years and wealth brought to the nation count for naught, and belt tightening and a focus on survival is the only way to ride the storm.
Let’s hope mining, for its sake, has fight left in it.