There’s a little rumour going around the London market that BHP Group PLC (LON: BHP) might be thinking of making a bid for Glencore PLC (LON: GLEN) and that this would then have knock-on effects upon the other major miners like Rio Tinto PLC (LON: RIO). Share prices aren’t moving very much on this news but who knows what might happen?
The big background question here is that we’re not really sure where we are in the metals cycle. It’s possible to argue either way, that we’re at the start of a commodities supercycle or that we’re at the end of one. Note that this isn’t really about the minor metals like lithium or even cobalt in the battery revolution. Both of those are markets too small to really move the prices of these mining majors – except perhaps cobalt for Glencore.
Instead, we need to be talking about iron ore and copper, the truly vast global markets that do move prices of global giants like BHP and Rio Tinto. Aluminium could be thought of as being important as well but prices there are really dominated by energy costs, a different set of calculations.
Rio Tinto has just announced its likely iron ore shipments from the Pilbarra for the coming year. This is up on last year and also slightly behind expectations of what folk thought they would be for 2022. But the big driver isn’t going to be a few percent either way in iron ore volume, but the price of iron ore which could vary down by 50% or up by 100% and more. As it has done over the past few years. Copper is also wildly volatile.
What’s driving this is of course the development of China. That’s not just the marginal demand for the global economy it’s also a plurality of that demand. So, macroeconomic conditions in China matter for all the major miners – BHP, Glencore and Rio Tinto.
So, what’s the game there in China? Is that implosion of the property market going to mean a dramatic slowdown in construction? If so then both iron ore and copper are going to fall back in price. Well, maybe – because that’s the other side of the big question. What about other nations? Is India – and Indonesia, Bangladesh and so on – about to do what China did? Have two or three decades of 6 and 10% growth in GDP? If they do then we’re not at the end of the China driven metals supercycle, we’re at the beginning of the next such metals supercycle.
This is what’s driving this speculation about a reshuffle of major mining assets and major miners like Rio, BHP and Glencore. That Glencore has just lost – through retirement – its driving creative force, Ivan Glasenberg, adds to the spice.
That underlying question about the metals supercycle is one thing. A BHP bid for Glencore might arrive, it might not – or perhaps some tie-up with Vale and so on. The thing is, if there’s a reshuffle of the ownership of the world’s major mining assets then it’ll not stop with one of the majors. It’ll flow through to affect the others like Rio Tinto too.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.