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Commodity Rout Erases 1.2 Trillion In Mining Stock Value

The much-hyped commodity supercycle could be dead before it has even properly begun. After a  bright start to the year that saw commodities and metals like copper, nickel, aluminum, zinc, and tin take out all-time highs, the commodity markets have gone into a sharp correction that has erased virtually all of their earlier gains. This phenomenon has been linked to investors reversing bullish bets on everything from oil and copper to corn and wheat in the latest sign of recession fears gripping financial markets.

Despite historically low stockpiles at 700kt vs. 2.4m tonnes a year ago, industrial metals continue to be hammered down, with the Financial Times claiming that hedge funds are largely to blame for the ongoing price declines by selling out of long, or positive, positions in certain commodities and replacing them with bearish wagers.

Indeed, FT has reported that Aspect Capital, which manages $10.6bn in assets, has been betting against commodities such as iron ore, steel, copper, and silver since around early May, as prices have sold off in anticipation of a global economic slowdown. The money manager has also been shorting sugar and cocoa for some time, and has recently taken small short positions in wheat.

All this betting against commodities has slammed the brakes on a furious rally.

Copper is currently trading at its lowest since November, while iron ore prices are again coming dangerously close to double digits after soaring above $200 a year ago.

The Ukraine war lit a fire under Platinum Group Metals (PGMs), only to give up those gains and more.

Meanwhile, nickel prices are back to where they started the year at $21,249 per tonne.

Back in March, a historic nickel short squeeze sent nickel prices soaring to an astonishing $100,000 per tonne--doubling the previous all-time high over the course of one morning-- and plunged the London Metal Exchange into an existential crisis. The LME subsequently closed trading and took the dramatic step of retroactively scrapping $3.9bn worth of trades made prior to the suspension--outlining that the nickel market had become disorderly with prices no longer reflecting the underlying physical market.

Related: French Industry Switches To Oil From Gas Amid Uncertainty Over Russian Supply

Russia is one of the world’s largest producers of nickel. When the country invaded Ukraine, fear of supply disruptions sent the price of nickel into a frenzy, so much so that on March 8, the London Metal Exchange decided to suspend nickel trading. Never mind the fact that Russian metals had not been sanctioned. Some traders were willing to bet the farm that the wild nickel rally would come crumbling down like a house of cards and opened massive short positions--but got their timing wrong and were forced to cover. Just like the famous copper squeeze of more than a century ago, the nickel market snafu was triggered by enormous short positions held by a single man: Chinese metal trader Xiang Guangda, the founder of China-based Tsingshan Holding, the world’s biggest nickel producer.

However, lithium prices have been able to hold their own, with lithium carbonate trading near its recent all-time high of 500,000 CNY/T ($74,470/T).

Unfortunately, the same cannot be said about lithium stocks.

Source: The Financial Times

Mining selloff

Not surprisingly, mining stocks have been selling off heavily, with many now in the red in the year-to-date.

According to Mining.com, the world’s 50 most valuable miners lost $383 billion and are now worth $1.37 trillion, down from a peak of $1.75 trillion at the end of March this year, while mining’s top tier stocks have lost a stunning $1.26 trillion.

The top 10 mining companies have lost a combined $600 billion, with mining giants BHP Billiton (NYSE: BHP) and Rio Tinto (OTCPK:RTPPF) among the worst performers.

Lithium miners have not been spared, with Albermarle (NYSE: ALB) and SQM (NYSE: SQM) seeing their valuations slip 1.2% and 2.5%, respectively, in the second quarter.

Source: Mining.com

Ironically, Russian miners have been the exception here, with many posting strong returns ever since trading resumed on the Moscow Stock Exchange. Indeed, palladium, nickel, and copper producer Norilsk Nickel and diamond giant Alrosa have seen their valuations increase 23.2% and 8.4%, respectively, during the second quarter.

By Alex Kimani for Oilprice.com

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