Anglo American warns of double dip in Chinese commodities demand

  • @AlistairDawber

There are still doubts about the recovery in commodity prices, according to the chief executive of mining giant Anglo American, who yesterday warned that the soaring price rises of some metals in the last few months is unlikely to be sustained.

Speaking to an audience in Australia, Cynthia Carroll said that various stimulus packages had helped spur the prices of copper, nickel, spot iron ore and metallurgical coal prices, “but there are still some question marks over the sustainability of the recovery. Continued deleveraging by households, companies and banks and the shadow of rising unemployment and large budget deficits in the major western economies are still a great concern.”

However, Ms Carroll, who is trying to fend off rival Xstrata’s nil premium approach for Anglo, added that longer term trends were positive, especially for platinum and diamonds. The two are assets in which the company has a strong profile, and Xstrata says would help a combined group avoid volatility over the course of an economic cycle. Both companies are strong in copper and coal, both of which are considered strong in the early stage of a cycle.

Despite arguing that prices may come under pressure in the short term, Ms Carroll says demand from China in particular is likely to sustain commodity prices beyond the next six months: “Looking at China, the engine of growth for bulk commodities and base metals, we’ve seen near-record levels of imports of copper and coking coal in recent months as the government’s huge fiscal stimulus begins to counter the downturn in exports,” she said.

“We may see some easing in growth in the short term but the longer-term fundamentals remain sound. The BRIC economies are stepping up their spending on infrastructure in coming years.”

The IMF estimates that infrastructure spending accounts for half of all fiscal stimulus measures in the G20’s emerging market economies. In China, the government stimulus package will lead to an addition $250bn to $300bn being spent on infrastructure projects by the end of next year.