Economic news has been mixed in recent months, with increasing uncertainty and volatility around the short-term outlook. In China, activity is slowing as the authorities seek to rebalance the economy away from investment towards domestic consumption. Over the next few years, China’s economic growth rate should run well below the average rate of the last decade, which will be a drag on growth in other emerging economies. There are more encouraging signs of an upturn in the major advanced economies. The US housing market is improving but tighter fiscal policy is weighing on economic growth and there is increasing uncertainty around possible changes in the Federal Reserve’s monetary policy. The Japanese economy is also recovering in response to the Abe government’s radical policy shift, but there are some doubts about the sustainability of the upturn. In Europe, economies appear to be stabilising as downside risks diminish.
This has created a challenging macro environment and impacted short term prices for all of the Group’s products, with the possible exception of palladium where the supply demand fundamentals are particularly strong. Intra-year volatility to the downside has been severe, exacerbated by muted seaborne supply reactions particularly in thermal and metallurgical coals due to fixed mining and logistics costs.
In the medium term, the Company expects solid global economic growth broadly in line with its underlying trend. In China and other emerging economies, there remains significant potential for further urbanisation and industrialisation to support robust growth, and demand for key commodities including crude steel (iron ore, and metallurgical coal), copper, nickel and thermal coal. The emergence of the expanding middle class will support rising intensity of consumption for the late cycle products in our portfolio – PGMs and diamonds – and also benefits the phosphates business.
Medium term supply growth poses challenges to the prices of some global commodities, most notably iron ore and copper. However, in the long term prices for Anglo American’s products are expected to be supported by supply constraints in many jurisdictions and the challenges producers face in bringing new supply into production. Economic uncertainty, as we are seeing currently, tends to restrain new supply, so for all these reasons, in the longer term the Company expects to see tightening market fundamentals and a recovery in price performance.