Mining Service Firms Outlook: Rough Terrain

BMI View: T he pain in the mining servicing sector is far from over. A growing number of miners will preach austerity with the fading of the China-led commodities boom, pushing the global mining industry into cash preservation mode. Amidst the sharp slowdown in exploration activity, mining suppliers will suffer from a sharp reduction in order books and be forced to trim the prices of their equipment and services over the coming quarters. This should help to roll back some of the unsustainable cost pressure endured by the mining industry in recent years.

In our view, the pain in the mining servicing industry is far from over. The economic slowdown in China will continue to take its toll on demand for mining equipment makers over the coming quarters. We expect the structural deceleration in the Chinese economy to return to focus in 2014, with real GDP falling from 7.6% in 2013 to 6.7% next year.

With miners across the board pruning their portfolio and shying away from the development of greenfield projects, the global mining sector will continue its fundamental shift from 'growth-at-all costs' to capital-efficiency and cost-containment. Mining suppliers including Caterpillar, Atlas Copco and Joy Global have announced a series of earnings downgrades in recent quarters amidst the sharp slowdown in exploration activity within the mining space.

Prices Weaken, Capex Slide
S&P GSCI Industrial Metals Index & Mining Capital Expenditure

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This article is tagged to:
Sector: Mining
Geography: Global, Australia, China, Guinea, United States

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