Resources stocks take a hit amid slowdown fears

PUBLISHED : Tuesday, 04 October, 2011, 12:00am
UPDATED : Tuesday, 04 October, 2011, 12:00am


Mainland steel, iron ore and coking coal producers saw their share prices plunge on concerns that China's economic slowdown will pare demand for basic materials.

Shares in steelmakers have already been sold down sharply in the past two months amid a deteriorating profit outlook as steel prices weaken and iron ore and coking coal costs rise. But analysts said even the steel-smelting ingredients - which until last month had been fetching high prices on the mainland due to tight supply - were 'catching up' on the souring investment sentiment.

Shares in Mongolian Mining, the nation's largest exporter to China of coal used in steel smelting, fell as much as 20.5 per cent before ending yesterday 16.9 per cent lower at HK$5.77.

Shougang Fushan Resources Group, the mainland's second-largest hard coking coal producer, slid 14.4 per cent to HK$2.26.

Steelmaker Shougang Concord International Enterprises, which part-owns Shougang Fushan and has stakes in iron ore projects in Australia, shed 6.1 per cent to 38.5 HK cents. Steelmaker Angang Steel lost 9 per cent to HK$3.75.

'I think it's a case of laggard selling,' said CCB International mining analyst Karen Li. 'Previously, the steelmakers got hammered. Now it's the turn of iron ore and coking coal.'

Mainland spot market iron ore prices were fetching 1,100 yuan a tonne, buoyed by still expanding steel production, a Commerzbank note said last week. It peaked at 1,450 yuan (HK$1,333) in January.

Dale Choi, an analyst at Frontier Securities, wrote in a research note: 'The whole world has become suddenly risk-averse but Mongolian coal remains very much in demand.'

Still, Citi analysts cut their forecast on mainland coking coal prices by 5 to 8 per cent to 1,750 yuan a tonne for next year and 1,650 yuan for 2013, compared with 1,750 yuan for this year. They cited slowing mainland steel output growth, rising coking coal output and greater use of lower-quality products. They said spot market steel prices may fall 12 per cent by year-end from current levels due to weak demand and resilient output.

Meanwhile, power station and coking coal producer Yanzhou Coal Mining's shares sank 14.3 per cent to HK$14.68 after it said on Friday it had agreed to pay US$260 million for 19 permits to explore for potassium minerals in Saskatchewan, a province in Canada. Although the new permits allowed it to diversify from its core coal business, Yanzhou said it could 'leverage its mining expertise.'

Li of CCB said the firm would do better to focus on coal and let parent Yankuang Group explore for potassium, a lucrative fertiliser ingredient.