A CLUSTER of Australia's biggest mining and resource stocks have sunk to their lowest ebb in years, after another day of selling fuelled speculation about the longevity of the resource boom.
A strong and well-received production report from the nation's biggest company, BHP Billiton, was not enough to drag the market out of its pessimistic mood, with investors preferring to take cues from gloomy Chinese indicators.
The benchmark iron ore price fell below $US130 per tonne for the first time since November, and Shanghai steel futures were priced at their lowest level this year, eroding confidence in Australia's iron ore producers and dragging the S&P/ASX 200 Index into negative territory for the first day in four.
BHP lost almost 2 per cent to close at $30.18, its lowest price since March 2009.
Rio Tinto lost more than 3 per cent to close at $52.78, its lowest price since July 2009.
Fortescue Metals Group and Atlas Iron both lost more than 3 per cent, with Atlas plumbing its lowest depths since May 2010, and Fortescue downgraded to a "hold" rating by Deutsche Bank on the back of this week's cost blowout.
The selling was not confined to iron ore, with the nation's biggest listed gold miner, Newcrest Mining, briefly touching its lowest ebb since November 2008, before rallying slightly higher. Oil and gas producer Santos reached its lowest closing price since October 2008, while uranium producer Paladin Energy was revisiting prices not seen since June 2005.
Goldman Sachs described the recent events in the resource sector as a continuing "train smash" and while the big mining stocks now appear cheap, their appeal with investors may yet wane further.
Merrill Lynch analyst Peter O'Connor said Rio was increasingly less likely to conduct a round of share buybacks next month on the back of this week's first-half results.
BHP was already considered unlikely to conduct such a round of buybacks given its capital spending commitments, and UBS analyst Glyn Lawcock said more pain could be on the way.
"For the next one to two months there is more downside than upside in price and with weak steel pricing we expect to eventually see steel production cuts," he told AAP.
"I think [BHP] is well placed to manage through this, but that doesn't mean the share price has to respond."
The pessimism emerged despite BHP publishing fourth-quarter results yesterday that were better than most analysts expected.
BHP's iron ore division performed particularly well, with the 40.9 million tonnes produced in the three months to June 30 almost 10 per cent better than expectations.
Deutsche analyst Paul Young said the 174 million tonnes of iron ore produced by BHP's Pilbara operations during the past year was also close to 10 per cent better than the guidance offered by the company a year ago.
Copper production was also higher than the previous quarter and the June 2011 quarter, although the full-year result is lagging the year to June 2011.
Coking coal production remained strong, beating results from the March quarter and the June 2011 quarter. Production for the full year beat the previous year by 2 per cent.
Frequently Asked Questions about this Article…
What triggered the recent resource sector sell-off and market nervousness?
The sell-off was driven by speculation about the longevity of the resource boom and gloomy Chinese indicators. Falling commodity prices — notably the benchmark iron ore price slipping below US$130 per tonne and Shanghai steel futures hitting their lowest levels this year — eroded investor confidence and triggered broad selling in mining and resource stocks.
Which major Australian mining companies hit multi‑year lows during the sell-off?
Several big names fell to multi‑year lows: BHP lost almost 2% to close at $30.18 (its lowest since March 2009), Rio Tinto fell more than 3% to $52.78 (lowest since July 2009), Atlas Iron hit its weakest levels since May 2010, Newcrest briefly touched lows not seen since November 2008, Santos reached its lowest close since October 2008, and Paladin Energy revisited prices not seen since June 2005.
How did iron ore and steel price moves affect ASX mining stocks and the S&P/ASX 200?
The iron ore price drop below US$130/tonne and weak Shanghai steel futures undermined confidence in Australia’s iron ore producers. Those commodity moves helped drag the S&P/ASX 200 into negative territory, contributing to a broad decline in resource and mining stocks.
Did BHP’s strong production report lift the market?
No — despite BHP publishing better‑than‑expected fourth‑quarter results and strong operational numbers (40.9 million tonnes of iron ore in the three months to June 30, and about 174 million tonnes from Pilbara operations over the past year, roughly 10% above prior guidance), the wider market remained pessimistic and selling continued.
Are major mining stocks now considered 'cheap' and does that mean they're a buy?
Goldman Sachs said the big mining stocks now appear cheap after the sell‑off, but cautioned their appeal may still wane. The article highlights analyst warnings that apparent cheapness does not guarantee a near‑term recovery, so low prices can persist if commodity weakness continues.
Will big miners like Rio Tinto and BHP undertake share buybacks amid the downturn?
Analysts flagged reduced likelihood of buybacks: Merrill Lynch’s Peter O’Connor said Rio Tinto was increasingly less likely to conduct a round of buybacks next month following its first‑half results, while BHP was already considered unlikely to buy back shares because of its capital spending commitments.
What are analysts saying about the near‑term outlook for the resource sector?
Analysts sounded cautious: Goldman Sachs described events as a continuing “train smash,” and UBS analyst Glyn Lawcock warned there could be more pain ahead, expecting more downside than upside over the next one to two months and suggesting weak steel pricing could eventually force steel production cuts.
What does this market nervousness mean for everyday investors watching mining stocks?
The article shows market sentiment is being driven by global demand concerns and falling commodity prices, producing heightened volatility in mining stocks. It highlights that even companies with strong operational reports can see their share prices fall, and that analysts warn cheap valuations may not be a near‑term signal to buy.
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