South32 Share Price in Trouble as Commodity Supercycle Ends


The South32 share price has pulled back sharply in the past few months as commodity prices have suffered a major reversal. The S32 stock price is trading at A$3.73, which is about 32% below the highest point in 2021. As a result, the firm’s market cap has crashed to about A$17 billion. This price action is in line with that of other Australian mining companies like Santos. Pilbara Minerals, and St Barbara.

S32 is a leading mining company

South32 is a leading Australian mining company that has operations in Australia, South Africa, and South America. The company produces metals that are in increased demand around the world. Some of its top metals are alumina, aluminum, copper, nickel, leads, silver, bauxite, and manganese. It is also a leading player in the zinc and coal industries. 

In addition to mining and exploration, South32 is a leading player in commodity marketing. It runs these operations in Singapore, London, South Africa, and Australia. South32 was separated from BHP in 2015 as the company sought to undo its giant merger with Billiton.

Since then, it has severely underperformed BHP. Its stock has jumped by more than 126% while BHP shares have risen by over 150%.

South32 share price did well during the Covid-19 pandemic as its stock jumped by more than 150% from its lowest level in 2020 to its highest point in 2022. Recently, however, the stock has crashed by over 30% from its YTD high.

South32 shares have retreated

There are several reasons for this decline. First, while commodities are in high demand, there are signs that the super-cycle is now ending. In the past few weeks, the prices of key commodities that South32 produces like copper and coal has declined sharply. For example, copper has fallen to the lowest level in months. Similarly, the prices of products like silver and lead have all crashed. The chart below shows that the Invesco DB Commodity Index Tracking Fund has crashed in the past few weeks.

Commodity Index
Invesco DB Commodity Index Tracking Fund

Second, the company has been hit hard by the ongoing tensions between Australia and China. China has placed several restrictions on commodities coming from Australia. The country accuses Australia of siding with the US and western countries.

Third, while commodity prices have risen broadly, the ongoing crisis in Ukraine has led to a discount from Russia. As a result, South32 and other Australian companies are selling commodities like coal at a cheaper price. Buyers are preferring cheaper substitutes from Indonesia and Russia.

Finally, South32 has suffered from slow growth compared to its peers. Its annual revenue has crashed from over $7.5 billion in 2018 to about $5.46 billion in 2021. It even made a loss in 2021

South32 share price forecast

South32 share price
South32 share price chart

Turning to the weekly chart, we see that the S32 share price formed what looks like a double-top pattern above A$5 this year. In price action analysis, this pattern is usually a bearish sign. Now, the stock has managed to move below the 38.2% Fibonacci retracement level. It has also managed to drop below the 50-week moving average while the Relative Strength Index (RSI) has crossed the neutral level at 50.

Therefore, I suspect that the sell-off will continue as the commodity super-cycle nears its end. If this happens, the next key support level to watch will be at A$3. This view is in line with my Glencore and Pilbara Minerals forecast.

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