Miners bleed in panic selling
It was a bloodbath for Asian miners yesterday as investors forecast that slowing growth on the mainland would stop the nation gobbling up resources.
As panic selling roiled regional markets, mining stocks were among the hardest hit. In Hong Kong, mainland gold producer Zijin Mining plunged 8 per cent. Anglo-Australian mining giant BHP Billiton dropped 3 per cent and Rio Tinto tumbled 4 per cent in Sydney trading. Australian iron ore producer Fortescue Metals plummeted 9 per cent.
'Mining equities have fallen so much because there is a real risk Europe and the US will enter a recession, while there is more evidence that China's demand growth is slowing,' CLSA commodities analyst Andrew Driscoll said.
A preliminary gauge of mainland manufacturing activity has fallen this month. The preliminary HSBC China manufacturing Purchasing Managers Index slid to 49.4 from a final reading of 49.9 in August, according to results released on Thursday.
This lacklustre data also caused a fall in prices of some physical commodities, particularly base metals such as copper and tin, which are actively traded by hedge funds.
Copper, which is used in everything from wiring to roofing, fell for a sixth straight day in London to the lowest price in more than a year, hitting US$7,470 a tonne by press time. Tin and nickel also plunged.
Andrew Ferguson, chief executive of investment fund Apac Resources, predicted that mining exploration companies - those that have not yet broken ground on their projects - could struggle to get funding if the wave of pessimism swamping the resources sector did not recede.
'When metals prices fall, the relative cost of extraction becomes higher, and banks and equity investors could become less willing to supply funding. There may be less pressure to bring more expensive projects on stream,' Ferguson said.
But Clinton Dines, executive chairman of China-focused hedge fund Caledonia Asia, said there were bargains to be had in the mining sector if investors were 'willing to don their tin hats' and ride out a short-term storm.
'Share prices are far too low,' Dines said.
'Investors are forgetting that China and other emerging markets are not entering recession. They are still growing.'
Dines compared the present resources market to that of September 2008, when mining shares and physical commodities crashed following the Lehman Brothers collapse, before recovering because of Chinese demand.
'History never quite repeats itself, but often it rhymes,' Dines said.
World usage of copper is set to exceed production by 377,000 tonnes this year, according to the International Copper Study Group.