Canada’s raw-materials stocks are forecast to extend their longest losing streak in more than 20 years, as companies such as Banro Corp. (BAA) and Teck Resources Ltd. (TCK/B) struggle with falling metals prices and concern China’s growth will slow.
The Standard & Poor’s/TSX Materials Index of 60 stocks posted its fifth monthly drop in March, the longest string of declines since April 1990. The index has plunged 18 percent over that period, led by a 62 percent slump in gold miner Banro. Teck, the country’s largest diversified miner, has tumbled 22 percent this year.
Producers of raw materials from copper to coal and gold have slid amid concerns China is settling into a slower growth path, mining companies face escalating costs and gold’s status as a safe haven is diminishing as the U.S. economy gains momentum.
“China’s economy is growing, just not fast enough, and it’s hard to see a lot of upside for mining and materials companies,” John Stephenson, a fund manager with First Asset Management, said April 1 by phone from Toronto. Stephenson helps manage C$2.8 billion ($2.8 billion), including Teck shares.
Growth in China, Canada’s second-biggest trading partner, grew at an average quarterly pace of 8.5 percent from 2011 to 2012, down from 9.4 percent in the previous eight quarters. Growth fell to a three-year low of 7.4 percent in September, before rebounding to 7.9 percent in the fourth quarter of 2012.
Commodity prices, as measured by the S&P GSCI index, have declined 6.8 percent in the past 12 months. The gauge, which tracks prices for a basket of materials, has tumbled 27 percent since reaching an all-time high in 2008.
The slide in the materials index has dragged on the broad S&P/TSX Composite index. Its 1.5 percent advance in the 12 months through yesterday is the smallest gain among major equity benchmarks for the world’s 10 biggest markets, according to data compiled by Bloomberg.
Raw-material producers make up 16 percent of the MSCI Canada Index, the highest weighting among the world’s five biggest equity markets.
“People’s views have dimmed on the attractiveness of commodities, of Canada as a proxy for playing China and the commodity cycle,” said Michael O’Brien, a fund manager with TD Asset Management in Toronto. He manages about C$3 billion. “China’s economy will slow a bit. People are making their peace with that and its impact on commodity demand.”
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