Anglo American Annual Report 2012

OverviewIndexed 2012 commodity prices (1)140130The US economy also faces amore challenging domestic policyenvironment. The recent debateabout the ‘fiscal cliff’ has exposed theabsence of a credible medium termplan to reduce the US’ federal budgetdeficit and arrest the rise in debt. Incoming years, US policymakers willhave to balance the need for significantfiscal retrenchment against providingsupport for economic activity in theshort term. This implies a prolongedperiod of monetary accommodationfrom the Federal Reserve andsustained dollar weakness.In the medium term, we expect the USto return to its underlying trend growthof around 2½–3% a year. Europe’sgrowth rate will remain more anaemic.But economic growth should remainmore robust in the main emergingeconomies. There is considerablescope for further catch-up growth,especially in China and India. ButChina’s increasing scale implies thenew leadership must implementreforms to rebalance growth graduallyaway from investment towardsconsumption. The next stage of thecountry’s urbanisation will take placein the western inland provinces, whilegrowth in coastal provinces shouldslow modestly in the medium term.COMMODITYMARKETSIn an increasingly uncertain macroeconomicclimate, 2012 was a yearof commodity price weakness andheightened volatility. Averageannual prices were down for all ofAnglo American’s key commodities,with falls ranging from 10% for copperto 35% for hard coking coal.Price weakness in 2012 was acontinuation of a trend that emergedin the second half of 2011. Althoughannual average prices were downacross the Group’s portfolio, a numberof commodities spent much of the yearat prices equal to or above those seenin December 2011. In this respect therewas a marked contrast in performancebetween the precious and basemetals and the bulk commodities,with platinum and copper tradingabove December 2011 price levels formuch of 2012, while bulk commodityprices weakened materially.Price Index, December 2011 = 100120110100908070605040Dec 2011 Feb 2012 Apr 2012 Jun 2012Aug 2012Oct 2012Dec 2012Iron Ore (FOB Aus)CopperMetallurgical CoalNickelThermal CoalPlatinum(1)Monthly average pricesSource: Anglo American Commodity ResearchIn anincreasinglyuncertainmacroeconomicclimate, 2012was a year ofcommodityprice weaknessand heightenedvolatility.The platinum price increased by8% during 2012, with higher pricesreflecting not only the supportprovided by South African supplydisruptions, but also the relativelypoor platinum pricing environmentseen in late 2011. The price movedsharply upwards in both the first andthird quarters of 2012, in response toindustrial action in South Africa, withthe resulting losses in output helpingto offset the impact of a generallyfragile demand environment, mostnotably in the European auto sector.The copper price also rose by 8%,underpinned by stockpiling of cathodesin Chinese bonded warehouses, which‘sterilised’ a considerable amount ofmetal. Estimated global stocks ofcopper are still well below those ofother base metals and also somewhatbelow ‘normal’ working levels, whilevisible terminal market stocks arealso reasonably low. Investors andspeculators have therefore beenreluctant to ‘short’ the coppermarket in the light of the relativelylow levels of readily available stocks,the continued mine disruptions andsupply under performance.In 2012, the fall in the prices of bulkcommodities, notably those used forsteel making, was significant. Annualaverage steel prices were down by16% (HRC FOB Eur). However, 2012iron ore and hard coking coal priceswere 24% and 35% lower respectively,while molybdenum, which is alsoused in steels, was down by 17%. Theslowdown in Chinese demand, whichhas been magnified by destockingactivity, has been a principal factor inthese markets and, with the run-downof inventories having run its course andeven reversed, prices of both beganto improve from October, and, byDecember, iron ore prices were backto December 2011 levels.Thermal coal prices also declinedmarkedly for most of 2012, but beganto improve during Q4 following theclosure of some US supply and anincrease in gas prices. Europeanprices continued to be dampenedby coal displaced by gas, while Asianofftake has been muted. Globally,supply cutbacks have been limitedand the near term outlook is forcontinued supply additions fromIndonesia, exerting a drag effecton any price recovery.In 2013, the easing of macroeconomicpolicy globally, renewed infrastructurespending in China and strongermanufacturing output should helpsupport commodity demand growth.Coupled with price-induced projectdeferral (constrained capex) andsupply curtailments, this should tightenmarkets, thereby providing someprice support where there have beenrecent lows. This expectation issupported by the analysts’ consensus,which forecasts 2013 average pricesabove current levels for most ofAnglo American’s key commodities.Anglo American plc Annual Report 2012 05