To characterise the share price performance of the FTSE 350 mining complex as abysmal might actually be understating the issue. As 2016 gets under way, prices for key industrial inputs are being undermined by a perceived economic slowdown in China, coupled with gathering US dollar strength. Judging by recent estimates from Macquarie Research, the weakened pricing environment is set to stretch through 2016. Macquarie's full-year forecast for copper is down 26 per cent on the 2014 average, while those for thermal coal and iron ore are down 31 and 49 per cent, respectively.
Every one of the FTSE 350 mining constituents has taken a drubbing since metals/bulk prices clicked into reverse, but the experience of Glencore (GLEN) provides a salutary lesson in the corporate tendency to over-reach during periods of capital expansion. Last year, the group was forced to launch a major debt reduction programme, including an equity offering and the cessation of dividend payments, which will contribute to a planned reduction in net debt to around $18bn (£12.2bn) by the end of 2016 - down from $30bn at the June half-year. While it's true that the Switzerland-based group carries more debt than 'pure' mining rivals in order to support its trading activities, housekeeping on that scale suggests that management's leverage risk assessments have gone seriously awry.
Admittedly, Glencore wasn't the only resource group to crank up borrowings to meet China's hitherto insatiable appetite for raw materials, but given the group's central function as a commodities trader - purportedly the world's largest - you might have thought that Ivan Glasenberg and the Glencore board would have an insider's perspective on demand trends. Apparently not. Nevertheless, the proposed scale of Glencore's retrenchment has played well with City analysts; in a recently published note, Credit Suisse said that the group's refinancing plans should prove sufficient to allay ongoing funding concerns.