Anglo American investors flee as commodity prices collapse

As global commodity prices continues to plummet, the chances of an Anglo American recovery seem slim, leaving the bears in charge. 

Anglo American
Source: Bloomberg

With shares falling to a 2002 low, it is reasonable to say that expectations for the impending Anglo American earnings release are not particularly positive. Despite the well documented benefits of diversification, the company’s portfolio doesn’t make for great reading, given the massive depreciation in commodities over recent years.

Its diversified mining portfolio includes raw/bulk commodities such as iron ore, manganese, metallurgical coal and thermal coal. It also supplies base metals and minerals such as copper, niobium and nickel, and not to forget precious metals and minerals such as platinum and diamonds. All very different products, yet with one thing in common; they are all trading at multiyear lows; ranging from five to eight years.

Alongside plummeting prices, a slowdown in China has no doubt resulted in a significant reduction in demand for commodities globally. This has a double effect, resulting in decreased sales for Anglo, but also further downside for commodity prices.

Unfortunately recent announcements from the firm have continued the downbeat sentiment surrounding its business, with the firm forced to write-down $3-4 billion due to weakness in bulk commodity prices. However, given that CEO Mark Cutifani previously decided to use the company’s earnings release to record their previous $3.5 billion impairment, it is difficult to know whether this recent announcement is a change of tack which would signal less chance of such a thing happening this time around.

Despite a recent statement saying that Q2 production is in line with expectations, the continued depreciation of commodities means that the firm must to do more just to stand still.

The charts predictably reflect this weak performance, showing a firm that is well and truly down in the dumps. The weekly chart shows the recent break below £9.05 and the importance of that level. Ordinarily price would respect such a notable support level and the inability to catch even a minimal bounce signals a truly bearish sentiment. 

Despite price not respecting this level on the way down, I believe it will do so on the way back up, as markets try to find a good short entry position. As such, I am bearish overall and believe it will likely begin to turn lower again around the £9.06 level. Should we move any higher than that, the next resistance point would be around £9.63. Ultimately I believe we are highly likely to see a continuation of this downtrend and it will take a significant amount of upside to make me believe the tide is turning.

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