Mining Companies Turn Up The Charm As Economic Outlook Dims

The gathering marks the start of "mating season"--the time of year when metal producers court potential buyers, including smelters, factories and diversified manufacturers, in a bid to secure contracts for the year ahead.

But last year's jubilation at the resilience of the global economy has been replaced with worry. The companies have seen some of their major customers cut purchases, which is hurting prices and casting a shadow on earnings.

As prices for copper slumped to 14-month lows amid fears of a global recession, share prices of mining companies tumbled. The S&P/Toronto Stock Exchange Global Mining Index, which includes shares of diversified mining companies such as BHP, Rio Tinto and Alcoa Inc. (AA), is down 26% so far this year.

Copper is considered a leading economic indicator because of its wide use in consumer goods like smartphones and industrial applications such as household plumbing, electrical wire and auto parts. But fears that a global slowdown will erode demand for such products have pushed copper for December delivery to $3.1520 a pound on the Comex, down 30% this year.

China, the world's leading consumer of metal such as copper, zinc and iron ore, has taken steps to slow economic growth, and as these measures take hold its demand for raw materials is waning.

Fears that a default by Greece or another peripheral euro-zone member will trigger a domino effect that will shut the region's credit markets are keeping European customers under pressure.

Meanwhile, data from the U.S. are showing industrial activity is slowing and employment is struggling to recover, which means days when consumers rushed out to buy new cars, refrigerators and cellphones are unlikely to return soon.

These macroeconomic worries are already starting to bite. The world's largest copper mining company, Chilean state-owned Corporacion del Cobre de Chile, or Codelco, said some customers in the U.S. and Europe have been canceling their copper orders.

"We've had some clients asking to reduce their commitments for the second half [of 2011], while others have asked to increase them, so our sales plan remains the same," Codelco Chief Executive Diego Hernandez told reporters at the company's quarterly earnings presentation earlier this month.

Rio Tinto CEO Tom Albanese made similar comments in late September. "Order books are full and pricing is strong, but it is noticeable that markets are somewhat weaker than they were six months ago," he said.

This makes the upcoming week of brunches, cocktails, dinners, and presentations all the more important.

"When you talk about LME week, I've been there during times of euphoria and times of fear and mass suicide, and frankly it is equally well attended," said Bill Enrico, managing director at EMED Mining (EMED, EMD), a junior gold and copper mining company.

This year, it is crucial that mining executives convince their customers to renew contracts for raw materials like copper, zinc and tin at the same or higher volumes at a time when the outlook on growth is less than certain.

--Anthony Esposito and Robb M. Stewart contributed to this article.

Copyright © 2011 Dow Jones Newswires

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