Commodity Markets Entering Period of Stability, Orica CEO Saysby
Orica Ltd., the largest supplier of explosives to the mining industry, has begun to observe stability in commodity markets that have been marked by volatility, sinking profits and job cuts after a global boom ended.
“We still see a lot of volatility, but I think that I’ve seen more stability than I’ve seen in some time,” in the past month, Chief Executive Officer Alberto Calderon told reporters after an industry briefing in Perth on Thursday. “When I talk to our customers I get the sense they are saying ‘Well let’s get on with it’. They have done a very good job of cost-cutting. They just need to continue to grow, and that’s the behavior we are seeing.”
After declining for five years, the Bloomberg Commodity Index has increased 12 percent in 2016 as metals started to recover and energy rebounded. Last month, it moved less than 0.3 percent for the smallest change since 2012. In the medium term, Calderon, formerly a BHP Billiton Ltd. executive, said that he saw iron ore and coal prices staying depressed because of oversupply.
“It means there will be no big investments, no big capex, greenfield investments for a while in coal, iron ore,” he said. Chinese iron ore production may face further cuts of as much as 100 million metric tons of unprofitable output, he said.
Orica’s profit in the six months to March 31 fell by a third to A$149 million ($112 million) from a year earlier. It has cut its capital-expenditure forecasts and replaced a progressive dividend policy with a so-called payout ration, citing market conditions that had deteriorated more than anticipated.