It’s been a bad start to the year operationally for the big mining companies and their latest updates have served to act as a drag on the FTSE 100. Hot on the heels of Rio Tinto’s disappointing update was Anglo American flagging a tough first quarter and guiding for an increase in costs.
Commodity producers have enjoyed soaring prices in the past year but their moment in the sun might be coming to an end. The key question now is whether commodity prices are close to their peak for this cycle as a reduction in selling prices together with rising costs will put a squeeze on profit margins.
“Shareholders in Anglo American can’t really grumble about its latest trading update as they’ve enjoyed a 24% share price gain over the past 12 months, more than double the FTSE 100’s 10.4% gain. But the news might make them think about banking some of the profits,” said AJ Bell’s Russ Mould.
“The cracks in the latest round of trading updates from the sector are a reminder that mining operations don’t always run smoothly, commodity prices rarely go up in a straight line on a sustained basis, and earnings are volatile.
“Antofagasta was also in the same boat as Anglo American, with a difficult first three months of 2022 and it delivered news that spending will be at the top end of previous guidance. These negative factors were compounded by its shares trading without the right to the next dividend, amounting to a near-8% share price decline. Life insurer Legal & General also went ex-dividend, leaving its shares down 5.4%.”