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Mining stocks must dig deep as they show weakness despite rising commodity prices

Dino Kurbegovic

The start of the year was not kind to mining stocks despite most commodity prices touching highs or all-time highs early in March 2022. 

Slowdowns in 2015 and the early days of the Covid pandemic saw inflation fizzle out, but now it’s back stronger than ever, fueled in part by commodity prices.

Miners are seeing the commodity boom negatively impact their operations as energy prices skyrocket, and operational issues cause reduced output. This could be even more worrisome if the supply of raw materials dwindles inflation could rise to unstable levels.   

Australia’s largest stockbroking firm, Bell Potter, tracked the trend in reduction of prices in miners by sharing tweets on their profile, serving as a canary in the coalmine before the earnings reports came out.

Disappointment starts from the top

Anglo American Plc. (LON: AAL) delivered bad news to investors on Thursday, April 21, stating that their operation costs would be rising 9%, citing lower production, inflationary pressure, and stronger currencies in commodity-producing countries. 

They cut their platinum metals production by 6%, iron by 19%, and copper by 13%. The shares suffered a 9% drawdown. 

Rio Tinto (NYSE: RIO) reported earlier and also disappointed its shareholders, the session on April 20 saw the shares drop by 4%. Australian iron ore shipments for Q1 fell by 8% year-on-year (YoY) and 15% quarter-on-quarter(QoQ). Softer operational update “continues to shine a light on the challenges Rio Tinto is facing,” Tyler Broda, Capital analyst at the Royal Bank of Canada, stated.  

 RIO  20-50-200 SMA lines chart. Source. Finviz.com data. See more stocks here.

Vale (NYSE: VALE) contributed to the disappointments, with Q1 production of iron pellets falling 23.7% QoQ as well as sales of iron pellets falling 32% QoQ. Nickel output slipped 5.6% and copper production by 26% YoY.   

 VALE  20-50-200 SMA lines chart. Source. Finviz.com data. See more stocks here.

Cost pressures mount

Rising costs due to inflation, rising prices of key consumables like diesel and steel, coupled with the strength of currencies in crucial mining countries, added to the cost pressures the miners felt. Investors who looked to play the commodity boom through miners might have had a rude awakening with the numbers the miners reported. 

Commodity prices might still go up; however, the mining sector still has challenges in front of them which will be difficult to solve in the short term. If the boom in commodity prices is just the beginning of the commodities supercycle, miners might be in limbo for some time yet.  

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk. 

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