Mining industry: Overview

The US metal mining industry generated revenues of over $100 billion in 2006, an increase of 8% on 2005. The industry is characterised at present by high demand for metals and elevated prices, although increasing costs have meant that revenue gains have not been translated directly into higher earnings for industry players.

Steel production is the industrys most lucrative segment; its total revenues representing 85% of the industrys value. Base metals production accounts for a further 5.5% of the industrys revenues, with high prices of copper during 2006 boosting the value of this segment. Aluminum is almost as significant, generating 5% of total value. Electricity forms around one-third of costs for aluminum producers, and high US energy prices are detracting from their margins, especially compared to overseas producers.

Further cost increases have arisen from compliance with regulation aimed at curbing plant emissions. Massive demand from China has created significant upwards pricing pressure; this has eased the impact of additional costs, particularly within the steel sector where demand is strongest.

Leading players include BHP Billiton, Alcoa (aluminum), Phelps Dodge (copper), Freeport McMoran Copper & Gold (copper), Stillwater Mining (platinum) and Teck Cominco (zinc).
In response to increasing costs, many larger players have increased production in Asia-Pacific and Eastern Europe, or engaged in M&A activity in order to solidify their market presence. Early 2007 saw Russian regulators approving a merger between OAO Rusal, Glencore, and Sual. If this goes ahead, the company created would supplant US-based Alcoa as the world's largest aluminum producer.

source:www.investor.reuters.com