Mining's Latest Asian Stir-Fries

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How quickly things are changing in the world of mining and metals. In Asia, for instance, companies like BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP) were riding high and demanding far higher prices as recently as six months ago. Now, with the bottom having fallen out of commodities, all that's changing fast.

Take iron ore, for example. The mineral is a major element in steelmaking, and for the first half of this year -- as well as for a number of prior years -- the world seemed sweet for the likes of Billiton, Rio Tinto, and Brazil's Vale do Rio Doce (NYSE: RIO) -- or Vale to its friends -- which together control about three-fourths of the world's market for seaborne ore. On that basis alone, and with Chinese steelmakers then producing product as fast as possible, the three mining companies were able to extract major price increases for the year that kicked off in April.

Now that's changed dramatically. Chinese steel output fell 12% in November from the same month in 2007, and observers expect the new round of ore prices, which have entered the talking stage, to be down about 40%. The drop would represent the first decline for prices in half a dozen years.

And as if that weren't enough for the big miners, Indonesia, which has long been a major source of nickel, copper, gold, and coal, has finally passed a measure removing control of the nation's resources from the central government and ceding it to the local provinces. A likely result would be the cessation of long-term contracts for such mining giants as Freeport-McMoRan Copper and Gold (NYSE: FCX) and Newmont Mining (NYSE: NEM), along with BHP and Rio Tinto.

On that basis, and during several years that the change -- which passed on Tuesday -- has been contested, investment in Indonesia by the big companies will essentially dry up. Their fear, of course, is the increased uncertainty that would result from a switch from the contracts to a new system of five-year "exploration licenses."

This change, which, to my mind, ultimately won't benefit either the companies or the country, comes at a time when nickel prices are down about 60% during the year. And beyond that, copper's price slide is now approaching 70% since July.

All these events in Asia are crucial for the pace of the eventual recovery of resources prices. And since I know of no one who will profess with any conviction when that recovery will begin, I'd treat these new elements of turmoil as more reasons to view the mining sector with caution for now. 

Of the companies mentioned above, BHP, Vale, and Freeport have all been granted five stars by Motley Fool CAPS players. Why not add your votes to the parade?

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