Banks and investors have presented a divided front over the future of miners and commodity prices.
Citigroup has forecast a mini-meltdown ahead, predicting a major continuation of the current slump.
A round of massive sell-offs across China, and in Australia – which saw major institutional investor Blackrock withdraw shares from BHP – was recorded on the Bloomberg Asia Pacific Mining Index.
“Slowing growth in China, the world’s largest consumer of commodities, is the biggest contributing factor for slumping prices,” Will Yun, a commodities analyst at Hyundai Futures Corp. in Seoul, told Bloomberg.
Citigroup stated that an ongoing bearish market makes them believe that the cycle’s trough is yet to be reached.
“Across energy, industrial metals, and agricultural products markets remain oversupplied, partially because of the sluggish world economy, but largely because of the over- investment in developing new supplies in the last decade and favourable weather conditions providing bumper row crops,” the global head of Citigroup’s commodities research division, Ed Morse, said.
Morgan Stanley and Goldman Sachs are also predicting a bearish future for commodities, in direct opposition to JP Morgan research that the bottom of the decline is here.
According to JP Morgan, there is likely to be “some additional EPS cuts for miners near term, but again, not a step change”.
“We believe that the bulk of EPS downgrades are behind us given the latest consensus projections of -44% year-on-year EPS growth for miners in 2015.”
JP Morgan’s argument for miners was simple: that there is little downside left in the space. Mining has been punished more harshly than most sectors in recent years on the back of falling commodity prices.
Westpac has put forth research in a similar vein to JP Morgan, however they claim we are still in the midst of the super-cycle.
Paul Gardner, Westpac’s global head of structured commodity finance, said lower energy prices are aiding a mining resurgence due to cheap costs and shipping rates, and this combined with the eventual diminishing of current oversupplies within the next 12 to 24 months has created the foundation for future growth.
“We’re very much in that camp of this is a super-cycle — what we’re seeing right now is simply a price correction,” Gardner told Bloomberg
“The very fact that the petroleum cost has come down has lowered the cost base of a number of companies, it’s lowered the shipping costs,” he said.
“What you’re seeing at the moment is the usual cycle within a super-cycle,” said Gardner. “As that oversupply comes off, you will then see a rise in price again. So a cycle within a cycle is how I’d describe it.”