SHARP falls in commodities prices, concerns about a slowdown in the Chinese economy and predictions of a breakup of the eurozone have sparked fears over risks to the strength of Australia's mining boom, leading to the biggest fall on the local sharemarket this year.
Global markets fell yesterday and the Australian market was down more than 2 per cent, led by BHP Billiton and Rio Tinto which sank to near three-year lows.
The dollar continued its slide, falling below US99? and at one point to its lowest for the year at US98.95?.
Commodities prices have fallen heavily since February, with key indices such as the Thomson Reuters/Jefferies CRB index at near two-year lows, having fallen 11 per cent since February.
Jac Nasser, the chairman of BHP, said the company would not proceed with all the $80 billion in new investment announced last year, raising questions about jobs creation. Its chief executive, Marius Kloppers, said yesterday that cash flows across the industry were lower than they were a year ago.
The chief executive of ANZ, Mike Smith, added his voice to concerns about a fallout from the ructions in Europe, saying a break-up of the eurozone was "quite likely". The former Treasury secretary Ken Henry predicted this week the eurozone would fail within six months.
The President of Greece, Karolos Papoulias, has said that almost ?1 billion ($1.28 billion) has been withdrawn from the country's banks since the May 6 elections, which had resulted in a failure to form a government.
Added to the continuing uncertainty over Europe, fresh concerns have emerged about the impact of China's plans to lower economic growth to a more sustainable 7 per cent annually, from 10 per cent.
Lower projected demand has hit commodity prices, forcing mining companies to weigh up the profitability of projects and investors to question their pricing of stocks.
Australian commodities companies have fallen heavily. BHP shares fell 4 per cent to $32.49, their lowest since July 2009. Rio Tinto fell 4 per cent to $57.99, their lowest since October 2009. BHP has fallen 10 per cent this month and Rio has fallen 12 per cent in the same period.
Other energy stocks followed suit yesterday, with Newcrest Mining falling $1.07 to $23.80. Fortescue Metals fell 26? to $4.84 and Origin Energy fell 22? to $12.93.
The benchmark S&P/ASX200 index has fallen 6.5 per cent in the past 12 trading days, closing yesterday at 4165, its low for the day. Markets in the region were awash with red. The Hong Kong exchange fell 3 per cent. Japan, Shanghai, Taiwan and South Korea all fell heavily.
Adding to those pressures, investors expect increased production from new mines commissioned at the peak of the boom to start coming online in the next few years, increasing supply and putting further downward pressure on commodities prices.
Investors fear the fall in commodities prices signals that the peak in Australia's terms of trade and the peak of the boom may have passed.
A fall in growth in China, which this week made it easier for banks to lend money and stimulate the economy, may spell concern for Australian investors.
"Risks to the commodity boom have increased," said the chief economist at AMP Capital Investors, Shane Oliver. "We are certainly seeing a commodities correction. The broader question is: is this the top of the boom that got under way at the end of last century?"
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