Coronavirus may spur main commodity prices, says South32
Restrictions on worker availability and potential stimulus could help nurse commodity prices back to health
The coronavirus may help return the prices of South 32’s main commodities to good health, the diversified miner says.
The severe acute respiratory syndrome is spreading quickly beyond its origins in China and disrupting global supply chains as movement is restricted in a bid to limit contagion.
South32, which was spun out of BHP Billiton in 2015 and is among the top 40 on the JSE, reported an 84% slide in profit in its half-year to end-December as it battled lower manganese and aluminium prices in the wake of the US-China trade war.
South32 experienced a 21% decline in the average realised prices for its main commodities, which includes coal. These commodities have however lifted in the past two months and South 32 CEO Graham Kerr expects the Coronavirus outbreak will have a positive effect on prices in the short term.
He said 22% of South32’s products are destined for the Chinese market and restrictions on worker availability there may stoke demand for the miner’s imports. These commodities may also be buoyed by fiscal stimulus for the Chinese economy, which Kerr sees as potentially forthcoming in the second half of the year.
South32’s revenue declined 16% to $3.2bn (R47.7bn) and profit after tax fell 84% to $99m, with the company describing the global economy as “volatile”.
The company's ordinary dividends per share fell from US5.1c to 1.1c for the first half of its 2020 financial year. It declared a special dividend of another 1.1c a share.
Against a challenging backdrop for its main commodities, South32 said it achieved good operating results in the first half, with production for the majority of operations tracking on or ahead of schedule.
At its SA operations, production at South32’s SA Manganese business and its SA Energy Coal business decreased by 3% in response to market conditions. At its Hillside Aluminium smelter in Richards Bay, production increased by 1% despite an effect from load-shedding and operating unit costs decreased by 23% because of lower raw material input prices.
South32 continues to review its manganese alloy smelter in SA and expects the sale of its SA Energy Coal business to Seriti Resources will be tied up by the end of the calendar year.