Is the party over for industrial metals mining?

With demand declining in many industrial metals as China growth slows, it may be time to ask whether the party is over for mining. EBITDA for the industry is declining but enterprise value has not fallen as fast. Values are starting to look richer. Return on equity has declined by 20-30% for many industrial miners as the spread between price and costs have declined. Prcie to book ratios have, on the other hand, declined to levels seen in early 2009.  The high cost operators will have to think about cutting production as all margins are squeezed.

These negative effects will all have carryover to industrial metals prices which have been soft and may continue to be worth avoiding form the long side. The rationalization in the mining industrial is not something that happens quickly. Production will remain high even with margin declines, so prices will continue to move lower in the longer-run.