As of May 2015, the Global Mining Activity Index (PAI) had fallen to 41 points, reaching its lowest level in nearly three years. The SNL Metals Index price had also dropped almost to its lowest point in nearly three years. Although mining market capitalization has shown some recovery over the past six months, it remains significantly lower than the level recorded during the same period last year. Global mining activity continues to show a cooling trend, with no signs yet of an improvement.

●The global mining situation remains challenging. The main reasons behind this include the following: First, the overall economic climate is subject to cyclical fluctuations and downward pressure—a natural phenomenon that is difficult to alter. Second, there is an overcapacity in mineral production, leading to a supply-demand imbalance. In recent years, soaring mineral prices prompted many mines to expand their capacity and increase output. However, after demand peaked and then declined, the released capacity far exceeded current demand, resulting in oversupply. Third, human factors play a role. To some extent, market economies are also “confidence-driven economies.” A lack of confidence and pessimistic expectations often lead to distorted information about supply and demand in the market, causing significant market volatility.

●Although shale oil investment and the number of drilling rigs in North America are both declining, shale oil production has not actually plummeted. Driven by continuous improvements in technology, extraction efficiency has steadily increased, and crude oil extraction costs have fallen by about 20%. Overall, the shale oil revolution is still underway and has not been undermined by low oil prices. The global center of gravity for oil and gas production has already shifted westward, a trend that will undoubtedly have a profound impact on the global oil and gas supply landscape.

●The signing of the China-Australia Free Trade Agreement has not only reduced the cost of utilizing China’s mineral resources and stabilized the supply sources of China’s bulk mineral resources, but has also promoted deeper cooperation between the two sides in the field of mineral exploration. This has positive implications for enhancing the competitiveness of China’s mineral exploration industry. However, in the short term, it will also bring impacts on China’s mineral exploration companies, instrument manufacturing enterprises, and mineral resource management concepts.

●As the Belt and Road Initiative enters the implementation phase, the trend of sluggish investment may reverse, and China’s economy is poised to usher in a fourth investment boom. Meanwhile, Europe and Japan are also rolling out infrastructure investment or aid programs. All these signs indicate that, over the next two to three years, driven by a global investment boom in sectors such as infrastructure, the global mining industry is likely to embrace new development opportunities.

In the first half of 2015, a series of uncertainties—including the prolonged Greek debt crisis, expectations of interest rate hikes by the Federal Reserve, and large-scale capital outflows from emerging markets—combined to undermine the foundation of the global economic recovery, resulting in an uneven development pattern. Moreover, China’s economy faced increasing downward pressure due to factors such as slowing industrial value-added growth and a significant decline in export growth rates, raising the risk of deflation. Against this backdrop, the global mining industry continued its downward trend that had persisted for nearly four years in the first half of 2015—but the pace of the downturn had noticeably slowed.

I. Global economic growth is experiencing a structural slowdown, and the economies of the Eurozone and Southeast Asia face risks of instability.

In June of this year, two major international institutions—the Organisation for Economic Co-operation and Development (OECD) and the World Bank—successively lowered their forecasts for global economic growth, sounding a new alarm bell for the world economy. According to the World Bank’s projection, global economic growth in 2015 will come in at 2.8%, a downward revision of 0.2 percentage points from the bank’s earlier January forecast. Structural slowdown is the World Bank’s overall assessment of the current state of global economic growth.

As shown in Figure 1, looking at the performance of major economies, the U.S. economy is experiencing a slowdown in its recovery, while the European economy is staging a moderate recovery. The Japanese economy continues to linger at a relatively low level. Among emerging economies, there is a clear pattern of divergence: Russia’s economy is entering a recession, growth rates in emerging markets such as China and Brazil are slowing down, whereas India’s economy maintains strong growth momentum.

Figure 1   Major world economies PMI Trend ( 2012 Year 1 Moon ~2015 Year 6 Month)

In early June 2015, a report released by the OECD indicated that the global economy would experience slow growth over the next 18 months, and it would not reach pre-crisis levels until the end of 2016. The OECD lowered its growth forecast for the U.S. this year from the 3.1% projected in March to 2%, and reduced its growth forecast for 2016 from 3% to 2.8%. According to the OECD, the economic recovery over the past seven years has been unusually weak, which has constrained job creation, hindered improvements in living standards, and exacerbated inequality.

There are two major areas of uncertainty in the global economy: one is the risk of a Greek debt default, which could trigger significant turmoil in the eurozone’s financial markets; the other is the expectation of interest-rate hikes by the Federal Reserve, which will pose challenges for emerging economies. Affected by concerns over Fed rate hikes, a stronger U.S. dollar, and a wave of selling in global bond markets, stock markets, bond markets, and foreign-exchange markets in Southeast Asian countries have recently experienced substantial volatility. This year, several countries have faced capital outflows, non-performing loan ratios have reached multi-year highs, and economic growth rates have fallen to multi-year lows. A crisis of bad debts is virtually sweeping across Southeast Asia, and systemic risks in the region are on the rise. These adverse factors have undermined the foundation of the global economic recovery. Disparities in regional economic growth rates are contributing to a structural slowdown in global economic growth, making a full-fledged recovery still premature. To sustain recovery, the global economy needs new drivers of growth or the emergence of powerful engines capable of boosting global economic expansion.

II. The global mining industry continues to cool, and the mineral products market remains increasingly diversified.

1. The global mining index continues to decline, but the pace of decline is slowing down.

Affected by the weak and unstable recovery of global macroeconomic growth, the global mining index has continued its overall downward trend that began in mid-2011. However, the pace of the decline has明显 slowed down, and the index appears to be approaching a bottom (Figure 2).

Figure 2  2008 Year 5 Moon ~ 2015 Year 6 Monthly Global Mining Index Changes

As shown in Figure 3, the trend of SNL’s Mining Activity Index (PAI) indicates that, starting from September last year, the PAI has been on a downward trajectory—from a relatively high level of 74 points over the past two years all the way down to 50 points by February this year. After rebounding to 58 points in March, the index once again began to decline. As of May, the PAI had fallen to 41 points, reaching its lowest level in nearly three years. Similarly, SNL’s metal index prices have also almost reached their lowest levels in nearly three years. Although mining market capitalization has shown some recovery over the past six months, it remains significantly lower than the level recorded during the same period last year. Clearly, the global mining sector continues to show signs of cooling and has yet to exhibit any indications of improvement.

Figure 3  SNL Company PAI The index continues to show a downward trend.

Looking at the four sub-indices that make up the PAI index, we see a development trend of “one increase and three decreases” (Figure 4).

Ø From the perspective of initial resource discovery, there has been a substantial increase compared to both the same period last year and the second half of 2014 (Figure 4, upper left). Among these, the largest contribution came from the discovery of the Malmyzh copper-gold deposit in Russia in May 2015. The estimated resource volume of this deposit is 166.1 million tons (ore), with a copper grade of 0.34% and a gold grade of 0.17 g/t, yielding a resource value of US$815 million.

Ø According to key drilling results, the first half of this year showed a noticeable decline compared to the second half of 2014, and a slight decrease compared to the first half of 2014 (upper right in Figure 4);

Ø Looking at the financing situation of both junior and mid-tier companies, compared with the same period last year, both the number of successfully funded deals and the total funding amounts have significantly declined (bottom left of Figure 4).

Ø From the perspective of mining project development, the first half of this year has basically been in a contractionary phase (bottom right of Figure 4).

Figure 4  SNL Company PAI The four components of the index and their changes.

Top left: Initial number of resource discoveries and resource volume; Top right: Key drilling results

Bottom left: Financing status of junior and mid-tier companies; Bottom right: Status of mining development projects

2. Prices of key mineral products are approaching average production costs, and trends continue to diverge.

( 1 ) International oil prices have rebounded somewhat and are generally operating within a reasonable range.

After experiencing a sharp price drop in 2014, international oil prices saw a slight rebound at the beginning of 2015. Overall, the crude oil market in the first half of the year exhibited a volatile upward trend that gradually stabilized, remaining broadly within a reasonable range. In January, oil prices continued the downward trend from the fourth quarter of last year, with WTI briefly falling below $45 per barrel by late January. However, prices quickly rebounded afterward, only to fall again to this low level in mid-March. In April, as the U.S. dollar weakened, the oversupply situation eased, and geopolitical tensions intensified, international oil prices began to rise steadily. Brent crude oil prices rose by 21%, while U.S. crude oil prices increased by 25% over the same period. International oil prices have gradually emerged from last year’s deep slump and entered a phase of volatile consolidation (Figure 5).

Figure 5  2015 First half of the year WTI Oil Price and Brent Oil Price Trend Chart

( 2 ) Gold and silver prices are approaching average production costs and entering a relatively stable range.

As shown in Figure 6, the prices of gold and silver on the LME have remained largely stable, with a significantly narrowed price range. In the first half of 2015, the spot price of gold on the LME fluctuated around USD 1,200 per ounce—a level that currently represents the marginal production cost for global gold producers. According to estimates by the China Gold Group, the marginal production cost for major global gold producers ranges from approximately USD 1,100 to USD 1,200 per ounce. In the first half of this year, the highest gold price (USD 1,302 per ounce) was recorded on January 16, while the lowest price (USD 1,150 per ounce) was observed on March 11.

Figure 6  LME Changes in spot prices of gold and silver ( 2010 Year 2 Moon ~ 2015 Year 6 Month)

Left axis: LME spot gold price; right axis: LME spot silver price

In 2014, the break-even price range for major global silver producers was between $17 and $18 per ounce. In the first half of this year, the spot price of silver on the LME fluctuated between $16 and $18 per ounce, essentially staying around the level of production costs; however, the amplitude of these fluctuations was significantly narrower compared to previous years.

( 3 ) International iron ore prices have plummeted significantly and may continue to decline in the near future.

In recent years, the price of iron ore in the international market once climbed to nearly 200 U.S. dollars per ton at its peak, but has been steadily declining since 2014. In 2014, China’s average annual import price for iron ore was 100.6 U.S. dollars per ton, a decrease of 21.9% compared to 2013. By March 2015, the average import price had fallen further to 67.03 U.S. dollars per ton, marking a 15-month consecutive decline. On April 10, the price hit its lowest point yet, dropping to just 46.84 U.S. dollars per ton.

As global demand for iron ore is set to peak at 1.4 billion tons in 2016, the resulting oversupply situation will put roughly half of small- and medium-sized iron ore companies at risk of shutting down. According to Goldman Sachs analysts, iron ore prices are expected to fall to $52 per ton in 2015—a 18% downward revision from earlier forecasts. Goldman Sachs now projects iron ore prices of $44 and $40 per ton for the next two years, also representing a roughly 30% reduction from previous estimates. Credit rating agency Moody's shares a similarly pessimistic outlook on the future trajectory of iron ore prices, forecasting that iron ore prices could drop below $40 per ton either this year or next. Moody's believes that when spot iron ore prices remain around $40 per ton, the "Big Three" iron ore producers can reach their break-even point. Meanwhile, other competitors—such as FMG, Australia's third-largest iron ore producer—could face losses.

According to a Citigroup research report, due to declining demand in China and the counter-trend expansion of several global iron ore giants, iron ore prices could fall as low as $30 per ton. Citigroup forecasts that in 2015, the oversupply of iron ore will exceed 110 million tons, with 68 million tons of excess capacity attributable to Rio Tinto.

( 4 ) The price trends of copper, nickel, and tin continue to diverge from those of aluminum, lead, and zinc.

As shown in Figures 7 and 8, the prices of six base metals—copper, aluminum, lead, zinc, tin, and nickel—listed on the LME continue to exhibit a clear divergence trend. The prices of copper, nickel, and tin have maintained their downward trend since 2011, continuing to fall with relatively large price swings (Figure 7); in contrast, the prices of aluminum, lead, and zinc have largely entered a stable range, with smaller fluctuations (Figure 8).

Figure 7  LME Changes in spot prices of copper, nickel, and tin 2010 Year 2 Moon ~ 2015 Year 6 Month)

Left axis: LME nickel and tin spot prices; right axis: LME copper spot price

Figure 8  LME Changes in spot prices of aluminum, lead, and zinc 2010 Year 2 Moon ~ 2015 Year 6 Month)

3. Global production of iron, copper, and gold mines increased year-on-year, but showed a clear month-on-month decline.

Looking at the changes in production from global gold, copper, and iron ore mines, mining output for all three types of minerals saw a significant decline in the first quarter of 2015. However, compared with the same period last year, production still showed growth—particularly for iron ore, which increased by nearly 12% over the same period last year.

According to an SNL data report, in the first quarter of 2015, the total gold production from 46 global gold mining companies with quarterly output exceeding 50,000 ounces amounted to 11.2 million ounces, a 10% decrease from the 12.5 million ounces produced in the fourth quarter of 2014. Among these companies, AngloGold Ashanti, Goldcorp, and Sibanye Gold experienced the most significant declines in production. The combined quarterly output of these three companies fell by 476,000 ounces compared to the previous quarter, accounting for 36.6% of the total quarterly decline.

According to preliminary statistics on copper mine production, the total output of 22 publicly listed companies worldwide—each with quarterly production exceeding 10,000 tons—amounted to 2.41 million tons, a decrease of 88,800 tons from the previous quarter, representing a decline of approximately 4%. Among them, Glencore recorded the largest drop in production, with a quarter-on-quarter decline of 4%.