Mining stocks slide on growth concerns
October 17th, 2008 | by mantrionline |Commodity prices sank and analysts tipped future projects were now in doubt.
Albert Landman of Tricom Equities said resources had become the poor performers in the market.
“It has really fallen away the last couple of months,” he said.
“The pessimism about slowing world growth affecting commodity prices is being dovetailed by the big hedge fund redemptions.
“The question isn’t just how bad the world growth will slow to but when does this selling (in resources stocks) finish.”
Mr Landman said the iron ore sector, which once seemed immune to the downturn in the wider resources industry, was clearly also going to take a hit.
“The simple reality is a lot of (iron ore) production that was seen as possible in three to five years’ time — well a lot of that has to be thrown into doubt now.”
Resources companies were telling the market — until even a few weeks ago — that demand was still strong but confidence in the market has been lost and analysts have warned that unless there is a quick bounce from the sharp downturn, there will be a slowdown in project execution.
One analyst said China would lead Australia out of the slump.
“When China accelerates its growth again it will come after commodities,” he said.
But any hopeful sentiment on China took a major blow on Wednesday when Rio Tinto chief Tom Albanese said the long-foreshadowed deceleration in Chinese economic activity had arrived, to markedly slow growth in its demand for commodities.
The concern over China and the continued bleak outlook on the global economy sent resources stocks further into the red yesterday.
Fortescue Metals lost 10.14 per cent to close the day at $3.10 and OZ Minerals was 16.13 per cent lower at $1.04.
Iluka Resources dropped 0.78 per cent to $3.83 after delivering a drop in production during the third quarter. Woodside Petroleum was down 5.49 per cent at $37, despite delivering an 84 per cent increase in revenue for the third quarter.
Commonwealth Bank commodity strategist David Moore said the base metal prices had also fallen sharply, reflecting the continuing worries on the international economic outlook.
“Oil prices declined and remained at low levels through the day, reflecting the expected weakness in the international economy,” he said.
In Asia late yesterday afternoon, New York’s main oil futures contract, light sweet crude for November delivery, dropped $US1.34 to $US73.20 a barrel. It had slid $US4.09 to $US74.54 at the close of floor trading on Wednesday at the New York Mercantile Exchange.
Industrial metals also tumbled yesterday.
Copper for delivery in three months on the London Metal Exchange closed at $US4920 a tonne, down $US378.
Aluminium tumbled almost 5 per cent, while nickel sank more than 6 per cent.
Mr Moore said it was difficult to determine what the bottom for commodities would be.
Macarthur Coal went against the tide of negative views on the market, upgrading its half-year profit guidance to $150-160 million. It said the increase on the $13.5 million reported in the previous corresponding period was underpinned by higher coal prices and increased sales.
Its share price was down 13.74 per cent to $5.90 yesterday.
Chairman Keith DeLacy said while he was confident about the coal price, no one knew what effect the financial upheaval would have on the next round of negotiations. But he believed the China growth story would return to fuel the resources sector.
