{"id":82116,"date":"2015-12-08T11:24:30","date_gmt":"2015-12-08T16:24:30","guid":{"rendered":"http:\/\/countingpips.com\/?p=82116"},"modified":"2015-12-08T05:56:30","modified_gmt":"2015-12-08T10:56:30","slug":"managements-leading-companies-off-a-cliff","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/12\/managements-leading-companies-off-a-cliff\/","title":{"rendered":"Managements Leading Companies Off a Cliff"},"content":{"rendered":"
December 8, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Mining<\/p>\n

By Tim Maverick<\/a>, Senior Correspondent<\/em><\/p>\n

The quickest and surest way for investors to lose money is to invest in companies where the management is, to put it politely, incompetent.<\/p>\n

Numerous instances exist throughout history. But we\u2019re perhaps seeing the worst example ever, and it\u2019s from the global mining industry<\/a>. The level of incompetence being displayed is simply astonishing.<\/p>\n

Chinese Steel Collapse<\/h2>\n

China has the world\u2019s biggest steel industry, producing half of all steel. Crude steel output there soared more than 12-fold between 1990 and 2014.<\/p>\n

But now, thanks to overcapacity, the Chinese steel industry has shifted into reverse in a big way. Prices have fallen by nearly 30%. Steel rebar prices in China on the Shanghai Futures Exchange are at all-time record lows. Rebar prices are down 30% this year alone.<\/p>

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As losses continue to mount for the industry, even Xu Lejiang, Chairman of giant steelmaker Shanghai Baosteel, said that the industry\u2019s output will collapse by a fifth in the not-too-distant future. Forecasts are for a drop in production of at least 23 million metric tons (mmt) over the next year.<\/p>\n

The China Iron and Steel Association is in general agreement. It says that output probably permanently peaked in 2014 at 823 mmt. In effect, we\u2019ve seen peak steel.<\/p>\n

Iron Ore Dreams<\/h2>\n

That\u2019s bad news for the major iron ore miners \u2013 Vale S.A. <\/strong>(VALE<\/a>), Rio Tinto PLC <\/strong>(RIO<\/a>), and BHP Billiton <\/strong>(BHP<\/a>). China will cut back on its imports of iron ore, a key ingredient in steelmaking.<\/p>\n

The evidence is already there. The Baltic Dry Index, which includes ships that carry ore, hit its all-time low on November 20 at 498. Iron ore itself hit an all-time low \u2013 spot pricing began in 2008 \u2013 about a week ago at $43.40 per metric ton.<\/p>\n

Logic would dictate the miners cut back production. So does Economics 101.<\/p>\n

But the managements at the big three continue to live in a fairy tale. They continue clinging to their forecast \u2013 that Chinese steel output will rise 20% over the next decade \u2013 like drowning men to a life preserver. In fact, Rio Tinto still forecasts that annual Chinese steel production will hit a billion tons by the end of the decade.<\/p>\n

So the three blind mice (iron ore miners) continue raising output, using a scorched earth policy to eliminate the competition. In fact, next year, Vale will open the world\u2019s largest iron ore mine (Serra Sul in Brazil).<\/p>\n

And the iron ore sector isn\u2019t alone. Other mining segments \u2013 including copper, zinc, and nickel \u2013 continue to produce as if there\u2019s no tomorrow.<\/p>\n

How to Spot the Bottom<\/h2>\n

Eventually, the long nightmare for shareholders in mining companies will end.<\/p>\n

So how do you spot the signs that a bottom is coming and brighter days are ahead?<\/p>\n

Output cuts will help. But if Company A cuts its production, the dreamers at one of the big three miners will simply raise their output even more.<\/p>\n

A true signal will be the removal of one of these totally incompetent management teams. That should start the ball rolling toward real change.<\/p>\n

I then expect the big miner that made the change to finally say \u201cuncle.\u201d And I don\u2019t mean just deciding to finally cut back on output. I mean throwing in the towel completely, walking away from a segment like iron ore, and permanently shutting down production.<\/p>\n

If a permanent shutdown doesn\u2019t occur, miners will be in the same boat as shale oil producers. As soon as the price blips up a few dollars, a flood of supply hits the market. A commodities version of Sisyphus, if you will.<\/p>\n

That may happen sooner rather than later. In iron ore, for example, the price is quickly approaching the breakeven level for some of the big miners. This is despite falling freight, oil, and currencies helping to lower miners\u2019 costs.<\/p>\n

Until the permanent shuttering of mines occurs, the sector will remain in its downward spiral.<\/p>\n

Good investing,<\/p>\n

Tim Maverick<\/p>\n

The post Managements Leading Companies Off a Cliff<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com By Tim Maverick, Senior Correspondent The quickest and surest way for investors to lose money is to invest in companies where the management is, to put it politely, incompetent. Numerous instances exist throughout history. But we\u2019re perhaps seeing the worst example ever, and it\u2019s from the global mining industry. The level of incompetence […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-82116","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/82116","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=82116"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/82116\/revisions"}],"predecessor-version":[{"id":82131,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/82116\/revisions\/82131"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=82116"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=82116"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=82116"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}