There are a lot of places in which I disagree with the RBA’s Q2 SOMP.
That’s nautral, we all must make out judgements about the data, and the future is uncertain – however it seems odd to me that they have stuck to their guns about the mining investment boom.
RIO and BHP have been busy telling investors that they are going to delay, defer, and trim their capex plans. The FT today has two stories on their front cover addressing this:
I reckon that the only reason the big miners have not cut investment already is that they want the threat of increased supply to keep pressing down on potential competitors – the increased risk of lower prices due to increased supply ought to decrease their competitor’s access to capital markets. This will limit competition in the medium term.
However, just as soon as some of the mini-miners close, they’ll cancel the projects.
Forecasting closure is a tough gig – who knows? But the equity market has been telling us that the best days for the materials sector is over for some time. Following today’s 3.5% drop the index is at its lowest ebb since Q4’11.
Looking at the chart, and considering global events, I’m not a buyer until ~8k.
The message from the equity market, and both FT articles, is very clear: the time where mining investment plans surprised on the upside has passed. The next surprises will be on the downside.