What's going on?

It�s rainy days in the world of commodities: the oil price is tanking (see other article) and the mining business isn�t looking any rosier. As a result, a major miner, Anglo-American, announced some dire restructuring measures on Tuesday: it is suspending its dividend�for the next 18 months, selling 60% of its assets�and firing two-thirds of its workforce over the next few years.

What does this mean?

It really comes back to China. Much of the commodity (e.g. oil and metals) sell-off can be traced to the economy slowing down in China, which is the biggest consumer of metals like copper and iron ore. As demand from China slows, many commodities are trading at 2008-2009 recession levels. Anglo-American is particularly sensitive to this sell-off as iron-ore is a big part of its business. Other miners are feeling the same strain as Anglo-American, meaning more big restructurings (job cuts, asset sales, etc.) may be ahead.

Why should I care?

Bigger Picture: Miners need to mine less for prices to rise. Commodity prices, like most prices, are determined by supply and demand. The supply of metals hasn�t yet adapted to the huge decrease in demand from China. Anglo-American�s news is indicative of the huge cuts in supply which will likely have to occur before the price of commodities rise. For stocks: All mining stocks got slammed on Tuesday. Anglo-American was down 11% while major miners BHP and Rio Tinto were down more than 5%. Glencore (a company we have covered extensively in the past) was down 7%. It�s not clear when this bloodbath will end.