The mining sector fell further and faster than most other sectors on Monday as investors digested the latest economic update from China.
In the wake of the coronavirus, Chinese exports fell by 17.2% and imports by 4% in the first two months of the year. The numbers are an early tangible indication that Chinese economic growth will take a serious hit this year, and the mining companies, which feed commodities directly into that growth, are on the front line.
Against a FTSE 100 Index that was down by around 6% at mid-day, shares in BHP Group PLC (LON:BHP) were down 14%, shares in Glencore PLC (LON:GLEN) down 10%, shares in Anglo American Ltd (LON:AAL) down just under 10%, shares in Antofagasta (LON:ANTO) down 7%, and shares in Freeport McMoran (NYSE:FCX) 12%.
Both BHP and Glencore have some exposure to oil, which has dropped close to the US$30 per barrel mark, so there is some initial pain from that to be factored in too.
But over the past two decades the world’s major mining companies have grown used to consistently high levels of demand from China, and any sign that that demand might dry up is likely to send investors towards the exits.
Inside China itself metal inventories have high new highs, an indication that demand is weak. Stocks of the five main steel products held by traders in China, including construction steel rebar and the hot-rolled coil used in the manufacture of cars and home appliances, hit a new all-time high of 25.27 million tonnes on Thursday, according to steel intelligence gathering service Mysteel.
Meanwhile, data from the Shanghai Futures Exchange showed copper inventories near a four-year high.
Perhaps unsurprising, metals prices are also dropping, and this too is having an effect on the way the market is valuing the major mining companies.
The copper price has dropped from over US$2.80 per pound to less than US$2.60 over the past month. Aluminium and nickel prices have also fallen, although it’s worth noting there has been a slight uptick over the past week, as worries about supply from Indonesia begin to affect the market.
It’s also worth noting that metal inventories in London Metal Exchange warehouses have been drawn down significantly in recent days too. So, there are one or two glimmers of hope. After all, the commodity markets moved before the equity markets at the beginning of this crisis. So, keeping one eye on any further upward moves in metals prices may turn out to be an effective way of predicting the crisis end.
In the immediate term though, there’s likely to be little respite for those who are long miners.