The slowdown in China has rippled across the global economy like a large stone thrown in a pond. The economic engine of the Middle Kingdom has been the main driver of the global economy for a number of years now, and when things started to slow down in China, other sectors started to feel the pinch very quickly. The mining sector has perhaps been hit the hardest by the ongoing slowdown in China, as the demand for both precious and industrial metals has dropped notably. Steel and aluminum prices are the lowest in more than a decade. When you add it all up, $1.4 trillion has been lost in global mining stocks since the first quarter of 2011 is greater than the total market value of Apple, Exxon Mobil and Google parent firm Alphabet Inc.
Mining sector under siege
Any way you look at it, the mining sector has been hammered. BHP Billiton Ltd. and Rio Tinto Group were once among the largest global companies in any sector, but are down by close to 70% and 40% respectively, since 2011. Also of note, the shares of the largest commodity producers trading on the London stock market are more than twice as volatile as the benchmark stock index.
The Odey Special Situations Fund declined - 0.3% in November, according to a copy of its monthly investor update, which ValueWalk has been able to review. Following this performance, the $94 million fund has returned - 12.4% year-to-date. It remains 2.16% ahead of its benchmark, the MSCI World Index, for the year. In the November Read More
In depressing news, raw-material prices hit their lowest levels since 1999 on Thursday, after China’s stock market melted down this week following the PBOC cutting the key interest rate by the most since late summer.
In even more depressing news, according to consensus analysts estimates, China’s economy will grow by around 6.5% this year, the slowest rate in 20 years. The consensus calls for growth to weaken even more in 2017.
Anglo American Plc, worth 50 billion pounds ($73 billion) at its top in 2008, is now valued at close to 3.1 billion pounds. The almost a century-old company, the largest diamond and platinum producer in the world with interests in highly productive copper and coal mines, is now worth less than many mid-tier players.
Input from mining sector analyst
“It’s terrible, there are no two ways about it,” commented Paul Gait, an analyst at Sanford C. Bernstein Ltd. “A lot of people were hoping at the start of 2016 to see at least some stabilization in the commodity performance in these stocks. Essentially people were looking to close the consensus short that has characterized 2015. This has clearly not happened.”