European Policy Changes Flag Headaches for Miners

Last week’s “substantial monetary stimulus” by the European Central Bank highlighted the challenging cyclical outlook confronting the resources industry and the likelihood of an increasingly extended trough in prices to cope with the build-up in inventories. While this week’s PortfolioDirect investment commentary highlighted a modest improvement in metal prices, the critical pick-up in growth momentum needed to speed up the duration of the current metal price cycle remains absent. There was further evidence of this in official statements after the latest ECB monetary policy deliberations last week. While growth and inflation outcomes are connected, preventing a downward inflation spiral is of the more pressing priority for the ECB presently. A move to even modest growth outcomes of 1.7% in 2017 and 1.8% in 2018 is at the upper end of its expectations. This is a significantly negative signal for the resources sector which continues to produce at rates more suited to a higher growth environment. (VIEW LINK)