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Should They Go Hand In Hand?

09 May 2016 by lberuti

Disappointing data in China is never good news for commodities. Industrial metals fell as a slump in Chinese copper purchases and an increase in steel metal exports signalled weak demand in the top user. That led to a sharp increase of the risk premia in the mining and basic materials sectors. But with risk premia still compressed compared with the wides of the year, some analysts now argue that it would make sense to distinguish between miners and still producers. They argue that miners have been proactive in cutting their balance sheet down with some robust asset disposal plans now under way. Most recently AALLN (Anglo American Plc) announced the sale of its Nionbium and phosphates division, while GLEINT ( Glencore Plc ) is looking to sell a further stake in its agri unit. On their side, steel producers like MTNA ( ArcelorMittal SA ) or TKAGR ( ThyssenKrupp AG ) do not have such levers to easily pull and have high operational leverage to steel prices. Should we have another round of weakness in commodity prices, the balance sheet of miners could begin to look healthier than that of steel producers.