Big, diversified mining firms have a particularly close grip on the ups and downs of macro-economic cycles. In light of David Cameron’s recent doom-laden comments about the macro outlook, let’s see what those with their fingers most tightly pressed to the pulse have been saying.
Confident on China
BHP Billiton (LSE: BLT) (NYSE: BBL.US) expressed its most recent opinion on the maco-economic outlook with its full-year results, delivered on 19 August.
The firm’s directors are confident in the short- to medium-term outlook for that big growth driver: the Chinese economy. They reckon that the measured stimulus introduced by the Chinese government demonstrates commitment to maintain economic growth above seven per cent. BHP Billiton thinks consumption and services will continue to increase in importance.
Of the US, they think the curtailment of quantitative easing had limited impact on sentiment, as a solid increase in demand reflects a stronger labour market, rising disposable incomes, and higher equities and housing prices. However, an increase in capital spending will be required to sustain the recovery in the medium term. In Japan, BHP Billiton thinks a longer-term, sustainable recovery will be contingent on the scale and speed of structural reform.
With regard to the global economy, Billiton’s directors say stronger United States growth and an associated tightening of monetary policy could result in the rapid outflow of capital from emerging economies. However, developing nations with sound macroeconomic fundamentals would be less likely to experience a severe impact from this transition.
Challenging in the short term
Rio Tinto (LSE: RIO) (NYSE: RIO. US) commented on the macro-environment as recently as 28 November, saying that while the long-term outlook remains sound, the near term is undoubtedly more challenging.
That comment built on the firm’s economic outlook statement delivered with its interim results on 7 August. Back then, Rio Tinto said it was confident of the long-term fundamentals of demand, whilst recognising the changing nature of China’s economic development. However, the firm reckons the Chinese government is dealing effectively with the rebalancing of its economy.
Encouraging signs
Anglo American’s (LSE: AAL) views came with the firm’s interim results on 25 July. Back then, the firm’s directors saw some encouraging signs of activity strengthening in its key markets, although they thought uncertainty would persist for the balance of 2014.
In China and other emerging markets, Anglo American expects significant further urbanisation and industrialisation, and an expanding middle class, to support a rising intensity of consumption for late-cycle products. Over the long term, the firm thinks new supply will be constrained such that tightening market fundamentals will drive a recovery in price performance. The directors reckon that the data points to a recovery in economic growth in China, even though the construction market continues to be fragile as concern persists over housing prices.
Rgearding that all-important barometer of macro-economic health, copper, Anglo American says ongoing market concerns arising from uncertainties over the near-term outlook for the global economy may lead to short-term volatility in the copper price. However, the medium- to long-term fundamentals for copper remain strong, predominantly driven by robust demand from the emerging economies, ageing mines and declining grades across the industry, and a lack of new supply.
Business as usual
Overall, the big miners seem confident in the medium- to longer-term picture, whilst acknowledging short-term uncertainty and market volatility. Mr. Cameron’s macro-economic warning-lights flashing could just be a similar phenomenon to what we see when we start a car on a cold and frosty morning — the lights may flash on and off a few times, the car may judder, but, these days, we rarely find mechanical failure preventing us completing our journeys.
Where does that leave us as investors? Ahead of David Cameron’s lagging macro-economic observations, I’d say. Share prices are usually the first to react to macro news. I think we may have already seen the stock market dip relating to recent short-term macro-economic fears. For me, it’s business as usual. The big miners didn’t mention economic Armageddon, or anything similar — not even once!
