Major global mining stocks have underperformed in the past three months due to a sharp decline in iron ore and copper prices, as China's weak demand is likely to persist.
ADVERTISEMENTThe mining sector has experienced a downturn since May due to falling prices of industrial metals and critical minerals. The trajectory of mining stocks is often positively correlated with the price movements of their major products, with copper and iron ore being the primary outputs of these large miners.
Over the past three months, major European mining stocks, including Rio Tinto, Glencore, Anglo American, and BHP, have all fallen by 13% to 18%, while copper and iron ore prices have slumped by 17% and 16%, respectively. China's sluggish demand, driven by its ongoing property market crisis, was the primary factor behind this decline.
Iron ore hits a 20-month low
The price of iron ore cargoes with a 62% iron content fell to $88 (€79) per metric ton as of 16 August, the lowest level since November 2022. Despite a slight weekly rebound to just under $100 as of Wednesday, the downtrend may persist due to ongoing weak demand in China. Iron ore is a critical mineral used in the production of steel, which has been significantly impacted by the property crisis in the world’s second-largest economy.
According to the National Bureau of Statistics of China, new home prices in 70 cities dropped by 4.9% year-on-year in July, following a 4.5% decline in the previous month.
The housing price downturn has persisted for 13 consecutive months, despite China's stimulus efforts, such as cutting mortgage rates and reducing down payments. Several steel manufacturers in China have cut production, with some undertaking maintenance amid falling prices and widening negative profit margins. Consequently, China's crude steel output declined for the second consecutive month in July.
In July, Rio Tinto, the world's largest iron ore producer, reported first-half underlying earnings that fell to their lowest level in three years due to slumping iron ore prices. CEO Jakob Stausholm said: "Our experience with China is that if things are going less well, then the Chinese have a quite impressive ability to also manage the economy."
However, the latest data may indicate that China's efforts to bolster the economy have yet to take effect. This could place further pressure on the global mining sector.
According to a report in the Financial Times, the sharp decline in iron ore prices has wiped approximately $100 billion (€90 billion) off the market capitalisation of the big four miners, including BHP, Rio Tinto, Vale, and Fortescue.
Copper price retreats significantly
Another major product of the big miners, copper, has seen its price sharply decline, with copper futures on Comex slumping 17% over the past three months after reaching an all-time high in May.
Weak Chinese demand played a key role in driving down the prices of base metals, as China is the largest copper consumer, accounting for more than a quarter of global demand. The largest copper purchaser, State Grid Corp. of China, has slowed its copper wire orders this year, which may have contributed to the price decline.
Recent economic data has also indicated faltering progress in China's economic recovery. The country's industrial output grew by 5.1% year-on-year in July, marking the slowest rate in four months, alongside the third consecutive month of contraction in manufacturing activity and disappointing export figures for the same month.
Additionally, global market turmoil at the beginning of August has further contributed to the downturn in copper prices, as fears of a US recession mounted amid weaker economic data. Copper prices plunged to their lowest level in five months early this month, accompanied by a sharp decline in mining stocks due to a panic-driven sell-off.
