Anglo Joins Rio in Worst Mining Industry Contraction

Dec. 18 (Bloomberg) -- The world’s biggest mining companies are cutting expansion plans by about $200 billion as prices of metals, demand from factories and funding for projects collapse. “It will be the biggest cutback in the history of the resources sector, an emergency stop,” Graham Birch, who helps manage $40 billion in natural resources assets at BlackRock Investment Management in London, said yesterday. “Any project that is not under way is going to be stopped.” Anglo American Plc, which controls the largest platinum producer, reduced planned investment by more than half yesterday, scuttling a $45 billion expansion program. Rio Tinto Group, the third-largest mining company, will curb spending by $5 billion. Credit Suisse Group said Dec. 3 the industry may cut $193 billion of scheduled spending. Mine operators can’t stop production fast enough as demand for copper, aluminum and iron ore used in cars, buildings and steelmaking wanes along with global economic growth. Two-thirds of seaborne iron ore, a quarter of global copper and nickel, and 12 percent of aluminum output may be deferred for at least two years, Credit Suisse said. “The collapse in demand in the current quarter has been easily the largest anyone in all the industries we cover can recall,” Macquarie Group Ltd. analyst Jim Lennon, who has tracked commodities for 20 years, wrote in a report on Dec. 6. ‘End of Supercycle’ Copper, aluminum, nickel and platinum are poised for the worst year on record, falling at least 63 percent. The Reuters/Jefferies CRB Index of 19 raw materials lost 52 percent from a record reached July 3, after posting a 17 percent gain in 2007. Prices declined as the U.S., Europe and Japan fell into the first simultaneous recessions since World War II. China’s economy may grow as little as 5.5 percent next year, the weakest pace since 1990, according to CLSA Asia Pacific Markets. The end of six years of rising commodity prices undermined expectations that manufacturing growth in China would accelerate demand for raw materials for years in a so-called commodities supercycle. “Until we see Asia really picking up again, and I don’t think that’s going to happen in the next couple of years, then it’s the end of the supercycle,” John Clemmow, an executive director at UBS AG, said in an interview in London on Dec. 11. Mining companies from Melbourne-based BHP Billiton Ltd., the world’s biggest, and Rio Tinto in London to Cia. Vale do Rio Doce in Rio de Janeiro abandoned takeover plans and cut jobs because of the economic slump, tumbling commodity prices and a freeze in global credit markets. London-based Anglo American delayed investments yesterday in South Africa, Chile and Brazil. Australia to Brazil Anglo American fell 1.3 percent to 1,628 pence ($25) by 8:22 a.m. in London, BHP dropped 2.4 percent to 1,267 pence and Rio declined 1.7 percent to 1,532 pence. After advancing for six straight years, copper slumped 55 percent so far in 2008, while platinum fell from a record to the lowest in almost five years. About $1.3 trillion was wiped off the value of the 162-member Bloomberg World Mining Index since March on the back of declines in housing markets, car sales and manufacturing. Vehicle demand has dropped most in the U.S., forcing General Motors Corp. and Chrysler LLC to seek emergency government loans to avoid running out of cash, while European car sales slid 26 percent in November, the fastest pace since 1999. U.S. homebuilders’ confidence remained at a record low this month, signaling a housing recession will extend into a fourth year, while American manufacturing in November fell at the steepest rate in 26 years, according to industry indexes. “With commodity prices having halved, no one is making money,” Wayne McCurrie, a senior portfolio manager at RMB Asset Management who helps oversee about $16 billion, said by phone from Johannesburg yesterday. “No one wants their products anymore. They can’t sell them. They’re just slashing them back hugely.”