Although commodity markets and prices are becoming more positive, the sustainability of certain commodities’ recent performance remains uncertain, with risks to the Asian outlook in particular, Anglo American Chief Executive Officer (CEO) Mark Cutifani revealed in his latest annual report.
Cutifani revealed that demand for niche-grade materials is starting to provide an opportunity for some commodity producers, which may persist for some time. However, as supply struggles to either catch up with demand , or adjust downwards in line with any reduction in demand, it is likely that there will be ongoing commodity price volatility that reflects the normal dynamics of the industry.
Cutifani said early signs are that global consumer demand for diamond jewelry registered positive growth in 2017 in US dollar terms, following a marginal increase in 2016. Sustained diamond jewellery demand growth in the US was once again the main contributor to this positive outcome, he said. Anglo American owns the majority stake in De Beers. He further said demand for diamond jewelry by Chinese consumers grew marginally.
“In contrast, consumer demand for diamonds softened in India and the Gulf states, both in local currency and dollar terms, while Japan’s consumer demand growth was flat in local currency and lower in dollars,” he said.
Diamond producers’ primary stocks are estimated to have reduced considerably during the first half of 2017, as sentiment in the midstream improved and rough and polished inventories normalised for businesses in this segment of the value chain. However, as a result of US retailers tightly managing their inventories and the earlier timing of Diwali in India, there was a slight seasonal build-up of polished inventory in the midstream going into the fourth quarter. Overall, early indications are that additional consumer marketing undertaken during the main selling season had a positive effect on polished demand in the US, China and India in the final quarter of the year, leading to a beneficial effect on overall polished inventories.
Anglo American also has several base metals operations.
Global refined copper consumption grew by 2 percent in 2017, with China, which now accounts for almost 48 percent of global refined demand, continuing to display robust demand growth (+3 percent), notably from the infrastructure, home appliance and machinery sectors.
The tight market, coupled with renewed investor confidence, saw prices surge in the fourth quarter reaching $7,000/tonne for the first time in three years. The higher average prices also brought greater scrap volumes to the market, helping to offset some of the primary supply shortfall. Over the long term, Cutifani said the market is expected to remain tight. Demand for refined copper continues to grow, with potential upside from electric vehicles (EVs), their associated infrastructure, and the renewable-energy sector. Supply is expected to continue to struggle to meet growing demand, given the limited project pipeline, declining grades and more challenging mining conditions.
On the financial performance of Anglo American, Cutifani said in 2017, they set out to further strengthen the balance sheet in 2017 and have done so through a combination of wide-ranging self-help work, in terms of productivity and costs and capital discipline, along with receiving better than expected prices for many of our products.
“In 2017, we generated a 93 percent increase in attributable free cash flow to $4.9 billion. Underlying Earnings before interest, tax, depreciation and amortization (EBITDA) increased by 45 percent to $8.8 billion and Profit attributable to equity shareholders doubled from $1.6 billion to $3.2 billion