Mining companies sucked into Chinese stock market’s vortex – by James Wilson and Neil Hume (Financial Times – July 9, 2015)

London – Just when miners thought there was light at the end of the tunnel.

A month ago commodities were showing signs of stabilisation and investors in mining were cautious that a bottom might have been reached for the sector after four years of negative shareholder returns. Now China’s stock market rout has sucked the industry into its vortex, with mining shareholders taking fright at signs of increasing economic difficulties for its number one customer.

Shares in some of the largest miners have in the past two weeks fallen to levels last seen a decade ago, mirroring a downward lurch in commodity prices. The benchmark price of iron ore, key to steelmaking and one of the most important of traded mined commodities, fell 11 per cent in just one day this week.

The sector’s fall underscores how tightly its fortunes are bound up with events in China, which became by far the largest consumer of mined commodities in the first decade of this century amid rapid industrialisation, and supposedly set in train a natural resources supercycle.

China still absorbs about half of global iron ore, coal, and copper exports, but the country’s slowing economic growth since 2011 unleashed a severe downturn for miners by reducing demand for commodities.

“This [China’s stock market turmoil] is more unwinding of the supercycle — there was a positive demand shock caused by China on the way up and now China is delivering negative demand shocks on the way down,” says David Butler, head of European metals and mining research at Barclays in London. “Institutional investors are extremely cautious and those that have been a bit more confident in recent months will be completely dismayed by what is going on . . . the volatility can only be inflicting serious permanent damage on funds’ desire to come into the sector.”

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