Mining Shares Sink Deep – by Rhiannon Hoyle (Wall Street Journal – August 24, 2015)

http://www.wsj.com/

Stocks of major miners take a hammering as concern grows over the health of top market China

SYDNEY—Shares in major mining companies took a hammering Monday as concern grew over the health of China, the biggest buyer of commodities from copper to iron ore.

The rout began in Australia after disappointing results from two big mining companies there. South32 Ltd., which mines commodities from coal to manganese, fell 7.6%, taking its overall slide since it was spun out of BHP Billiton PLC in May to 34%. Fortescue Metals Group Ltd., the world’s fourth-largest producer of iron ore, tumbled 15%, after reporting an 88% dive in annual earnings. A broader measure of mining stocks listed in Sydney was down 5% on Monday, to its lowest level in more than a decade.

Investors’ bearishness spread to London, with shares in major miners BHP, Anglo American PLC and Glencore PLC all down more than 5% in early trading.

The sector is being hit hard by fears of a deepening slowdown in China, which this month has offered lackluster economic numbers and an unexpected currency devaluation. China’s main stock market closed 8.5% lower Monday.

For miners, a weakening Chinese economy may impair their best customer’s appetite for resources. China buys two thirds of all iron ore traded by sea, and about 40% of the world’s copper.

“It is a key moment for China—the equity market in free fall, the banking system increasingly starved of liquidity, rising capital outflows and a rapidly slowing economy,” said Angus Nicholson, a Melbourne-based analyst for broker IG.

CMC Markets U.K. chief market analyst Michael Hewson said miners and technology businesses are at the sharp end of the souring outlook for the world’s No. 2 economy.

“While it appears this month’s selloff catalyst was a fairly innocuous and not unreasonable readjustment in the trading band for the Chinese yuan, this particular Chinese butterfly also appears to have triggered a complete turnaround in sentiment and reassessment of stock-market valuations across the globe,” he wrote in a note.

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