SYDNEY—Shares in major mining companies took a hammering Monday
as concern grew over the health of China, the biggest buyer of
commodities from copper to iron ore.
The rout began in Australia after disappointing results from two
big mining companies there. South32 Ltd., which mines commodities
from coal to manganese, fell 7.6%, taking its overall slide since
it was spun out of BHP Billiton PLC in May to 34%. Fortescue Metals
Group Ltd., the world's fourth-largest producer of iron ore,
tumbled 15%, after reporting an 88% dive in annual earnings. A
broader measure of mining stocks listed in Sydney was down 5% on
Monday, to its lowest level in more than a decade.
Investors' bearishness spread to London, with shares in major
miners BHP, Anglo American PLC and Glencore PLC all down more than
5% in early trading.
The sector is being hit hard by fears of a deepening slowdown in
China, which this month has offered lackluster economic numbers and
an unexpected currency devaluation. China's main stock market
closed 8.5% lower Monday.
For miners, a weakening Chinese economy may impair their best
customer's appetite for resources. China buys two thirds of all
iron ore traded by sea, and about 40% of the world's copper.
"It is a key moment for China—the equity market in free fall,
the banking system increasingly starved of liquidity, rising
capital outflows and a rapidly slowing economy," said Angus
Nicholson, a Melbourne-based analyst for broker IG.
CMC Markets U.K. chief market analyst Michael Hewson said miners
and technology businesses are at the sharp end of the souring
outlook for the world's No. 2 economy.
"While it appears this month's selloff catalyst was a fairly
innocuous and not unreasonable readjustment in the trading band for
the Chinese yuan, this particular Chinese butterfly also appears to
have triggered a complete turnaround in sentiment and reassessment
of stock-market valuations across the globe," he wrote in a
The share prices of resources companies on Monday tracked the
tumbling prices for the commodities they produce, including copper,
which sank to its lowest point in more than six years, and oil,
with Brent crude falling below US$45 a barrel for the first time
since March 2009. Iron-ore futures on China's Dalian Commodity
Exchange were recently down 4%.
The carnage was visible across the Australian stock market,
heavy in resources producers. The benchmark index dropped to its
lowest level in two years as BHP Billiton Ltd., the world's biggest
miner, fell 5% and Rio Tinto Ltd. 5.2%.
While metals prices are the key reason for miners' woes, there
are growing concerns about their balance sheets as well. Fortescue,
for example, is struggling to pay down a $10 billion debt pile run
up during the commodities boom years. Its market value is now down
to roughly $4 billion—though it said Monday it would continue to
pay an annual dividend, albeit sharply less than last year's.
South32 said it planned to slash operating costs as it reported
a lower-than-anticipated net profit in its maiden annual fiscal
Chief Executive Graham Kerr said South32's shares had largely
been caught up in the selloff. "If you look at the share market
today, it is just swamped with other information," Mr. Kerr said in
IG's Mr. Nicholson said some companies might bounce back if
investors deem they've been dragged indiscriminately lower by the
"There are not any strong macro reasons for a rally yet;
however, it is important to keep an eye on this as a lot of stocks
are seeing their values become increasingly competitive," he
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(END) Dow Jones Newswires
August 24, 2015 06:35 ET (10:35 GMT)
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