RTRS: Project cuts, delays seen as crude, metal prices drop
By Steve James
NEW YORK (Reuters) - Oil and metal mining companies will likely be forced to cut or delay projects as a result of the precipitous drop in commodity prices, analysts said on Friday, as shares slumped on fears of a global recession.
"Everybody's in cash-conserve mode right now so new projects are getting canceled and expansions are getting curtailed," said George Topping, an analyst at Blackmont Capital in Toronto. "It sows the seeds for another big rally up in the metals, but who knows when it happens?"
Brian Hicks, co-manager of the natural resources fund of U.S. Global Investors in San Antonio, Texas, said: "The next 6 to 12 months will be choppy.
"But now, with oil below $70, a lot of projects are delayed or postponed. It will weigh on supply quite a bit."
Actually, international benchmark U.S. crude fell 6 percent on Friday to $63.93 -- down about 60 percent from a record high of $147.27 hit in July.
At that time, copper was selling for over $4 per pound, but since then has lost about 60 percent and on Friday was around $1.70. The metal has fallen around 24 percent just this week.
Aluminum was at a three-year low around 87 cents per pound, while the price of gold, traditionally a safe haven in times of economic uncertainty, fell below $700 per ounce for the first time in more than a year. In London it fell to $684.90, a 13-month low, before recovering to $702.
"Copper at $4 made no sense, when new production costs are $1.50 to $2." said analyst Charles Bradford of Bradford Research/Soleil. "When costs of making aluminum are $1 and it is only selling for 90 cents, you're not building new plants."
In fact, Alcoa Inc (AA.N: Quote, Profile, Research, Stock Buzz), the largest U.S. aluminum producer, recently said it would stop making aluminum at its Rockdale, Texas, smelter because of power supply problems. Its stock was down 4 percent at $9.59 on Friday afternoon.
And Century Aluminum Co (CENX.O: Quote, Profile, Research, Stock Buzz) has stopped new capital commitments and is assessing the status of its Helguvik smelter in Iceland, which was expected to start up by late 2010.
Freeport-McMoRan Copper & Gold (FCX.N: Quote, Profile, Research, Stock Buzz), the world's largest publicly traded copper miner, saw its stock fall 7.8 percent at $24.21 on the New York Stock Exchange.
The company reported lower third-quarter profit this week because of the lower copper price and said it would curtail planned mine expansions like the Sierrita and Bagdad copper mines in Arizona and would push back restart of its Miami mine in the state, cutting about $370 million in capital costs.
Freeport was also seeking to defer some spending at its Grasberg mine in Indonesia and at the El Abra mine in Chile.
Newmont Mining Corp (NEM.N: Quote, Profile, Research, Stock Buzz), the world's second-largest gold miner, whose stock actually rose 4 percent to $24.25, has said cost pressures are constraining development of its Boddington project in Western Australia.
Oil company shares fell sharply, as crude prices sank despite OPEC saying it will cut production by 1.5 million barrels a day to stem the slide in oil prices.
"The market has come down so far this morning. It seems to me this possibly may be the last day of panic sell, but I've thought that before," said Mike Breard, senior energy analyst at Hodges Capital Management in Dallas.
Jason Gammel, an oil analyst at Macquarie Research Equities, said it would take some time for OPEC's cut to work its way through the market. "I think we've moved beyond trading on proper fundamentals."
The risk for oil companies was that a severe economic downturn would mean the world used that much less oil over the long term. "The concern is that the demand destruction is going to be greater than what OPEC's going to take out of the supply," Gammel said.
The Standard & Poor's 500 Oil, Gas & Consumable Fuels Index was down 6.5 percent in early trade, but eased to 4.3 percent down in the afternoon.
Shares of Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz) fell 5.6 percent in the morning but were 2.5 percent down at $68.65 in the afternoon, while Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz) dropped 5.5 percent to $63.06 and ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz) slid 7 percent to $47.91, all on the New York Stock Exchange.
Shares of BP Plc (BP.L: Quote, Profile, Research, Stock Buzz)(BP.N: Quote, Profile, Research, Stock Buzz) closed down 5.38 percent on the London Stock Exchange and were off 6.5 percent on the NYSE, while Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research, Stock Buzz) closed down 5.09 percent.
(Reporting by Steve James, additional reporting by Euan Rocha, Susan Taylor, Anna Driver, Braden Reddall, Cameron French; editing by Lisa Von Ahn, Matthew Lewis and Gunna Dickson)
