Investment Slump Despite Raw Material Surge... Concerns Over Inflation and Carbon Zero Policy Setbacks

WSJ "Mining Companies Hesitant to Invest Amid Shareholders' Calls for Increased Dividends"

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Byunghee Park] Despite the sharp rise in raw material prices, mining companies are not making new development investments, the Wall Street Journal reported on the 25th (local time). Although mining companies' profits have increased due to the rise in raw material prices, WSJ reported that the profits are flowing out as dividends. WSJ analyzed that as new investments are not being made, concerns are growing that future raw material supply instability will persist, inflation worries will increase, and countries around the world will fail to achieve their carbon zero policies as planned.

Compared to the raw material bull market that occurred 10 years ago, it can be confirmed that new investments by mining companies have decreased.

According to data compiled by UK investment bank Liberum, capital expenditure of 45 major mining companies worldwide increased by 30% last year to $75 billion. On the other hand, dividends doubled to $66.1 billion. Dividends have increased noticeably compared to investments. This phenomenon is even more pronounced compared to 10 years ago when the previous raw material bull market occurred. Compared to 2012, the end of the raw material bull market 10 years ago, last year's capital expenditure decreased by one-third, while dividends increased by 125%.

The reason dividends have increased and investments have decreased is due to the experience of the bull market 10 years ago. At that time, excessive investment and mergers and acquisitions based on the raw material boom led to a prolonged slump in the mining industry afterward.

WSJ explained that currently mining companies are hesitant to invest due to shareholders' demands for increased dividends.

The Royal Bank of Canada (RBC) predicted that the combined earnings before interest, taxes, depreciation, and amortization (EBITDA) of global mining companies Rio Tinto, BHP Billiton, and Glencore will reach $140 billion this year. This amount is more than three times the $44 billion in 2015 when major metal prices were low. However, the capital expenditure of major mining companies is expected to decrease by 6% this year. In particular, investment spending on copper mines is forecasted to decline by 10%.

Goldman Sachs stated that although copper prices have doubled over the past year, no new copper mine developments have been approved. Goldman Sachs expects copper demand to increase by 40% by 2030 and predicts a supply shortfall of 8.2 million tons. Copper prices reached an all-time high earlier this month, rising to $10,762 per ton.

Copper demand is expected to increase further in the eco-friendly era. Along with copper, lithium and cobalt, which are used in electric vehicles, wind turbines, and batteries and are expected to see increased demand in the eco-friendly era, are also projected to be in absolute shortage. It is analyzed that the amount of lithium and cobalt that can be mined from currently developing mines will only meet half of the demand needed by 2030.

Tyler Broda, an analyst at RBC, explained that as a result, the cost of achieving carbon zero will become more expensive and structural inflation will continue.

This content was produced with the assistance of AI translation services.