Mining-Ferrous And Non-Ferrous Stock Outlook

 | Sep 06, 2013 07:44AM ET

A Brief Overview

Metals, given their characteristics -- high strength, durability, conductivity and aesthetic appeal -- command a pivotal role in daily life and economic development. The global population growth, phenomenal rise in the Chinese economy, urbanization in the Asian countries and the increasing requirements in the developed countries have created an unprecedented demand for minerals and metals. The metals & mining industry caters to this ever-rising demand by extracting (mining) and through primary and secondary processing of these metals.

The industry is oligarchic in structure, with certain producers accounting for a lion’s share of the output. The industry is highly cyclical and competitive. Metal producers are subject to cyclical fluctuations in prices, general economic conditions and end-user markets. However, the tepid global economic growth outlook has currently emerged as a major headwind for the global metal industry.

With respect to volume, iron and steel command a majority in the global metal industry, followed by aluminum. We have thus divided the metal industry into two broad parts: ferrous and non-ferrous. Ferrous indicates the presence of iron and it includes steel, iron and alloys of iron. Non-ferrous indicate metals that do not contain an appreciable amount of iron. Popular non-ferrous metals include aluminum, copper, lead, nickel, tin, titanium and zinc, and alloys like brass.

Let’s have a look at the ferrous and non-ferrous industry in detail, including driving factors, price dynamics, performance, outlook, etc.

Mining -- Ferrous: Iron And Steel

The steel industry, as well as its provider of raw materials -- the iron ore and coal mining industries -- have historically been highly cyclical and are highly susceptible to general economic conditions. This is particularly due to the cyclical nature of its main customers: the automotive, construction, machinery and equipment industries.

Iron-Ore Price Trends
The cost of iron ore is crucial for the global economy as it affects the price of steel and consequently changes the cost of everyday goods. It is also critical for the profitability of two of the world’s largest heavy industries: mining and steelmaking.

In the first half of 2012, iron ore prices were more or less stable before plummeting to a three-year low of $88.50 per ton in September last year. The price was dragged down by low buying activity due to a weak economic environment. It recovered by the end of 2012 due to aggressive restocking driven by Chinese steel mills.

In the first quarter of 2013, iron ore prices attained a high of $160 per ton, aided by strong steel production in China, seasonally weaker supply of the seaborne iron ore and increased demand growth from steel end-consumers, particularly the Chinese construction sector.

Get The News You Want
Read market moving news with a personalized feed of stocks you care about.
Get The App

However, iron ore prices remained volatile in the second quarter with an average price of $137.4 per ton in April, $124.7 per ton in May and then down to an average price of $114.5 per ton in June. The volatility owed much to the uncertain outlook for steel demand in China. Post-June, iron ore prices have trended higher as sentiment improved across the Chinese metals sector. Steelmakers were no longer destocking raw materials like iron ore, thus necessitating iron ore buying to meet the demand of the steel mills.

Iron Ore Industry Performance So far
Emergence of Chinese industrial demand has led to a paradigm shift in the iron ore market over the last two decades. China has become the largest producer of steel and consequently the largest consumer of iron ore, accounting for around 60% of the global seaborne market.

Incidentally, global exporters of iron such as BHP Billiton Ltd (Original post

Zacks Investment Research

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes