EXPECTATIONS that China will today release its weakest quarterly economic growth figures in three years have added to market pessimism on the mining sector.
Yesterday, Australia's top mining stocks suffered another selloff as investment banks continued to trim forecasts for commodity prices and share prices, with Credit Suisse downgrading its target share price for both BHP Billiton and Rio Tinto.
The bank's target price for BHP was revised from $45 to $35 while Rio Tinto's was revised from $90 to $70, based on the expectation that weakening commodity prices will shrink earnings by 32 per cent and 20 per cent respectively.
The news made a bad day on the markets even worse for resource stocks, pulling the two major miners down by more than 2 per cent, and delivering hits of 6 per cent and 4 per cent to Fortescue Metals Group and Atlas Iron respectively.
BHP and Rio shares have fallen daily for more than a week, and the $30.40 that BHP was fetching last night is the stock's lowest since March 2009.
Just as Merrill Lynch and other big banks have done in recent days, Credit Suisse's thinking was driven by downward revisions for most commodity price forecasts, including those of most importance to the Australian economy: iron ore, thermal coal and coking coal.
"While commodity prices will remain well above the average of recent decades, it is likely that many have peaked for this cycle," said the Credit Suisse analyst note, led by Paul McTaggart.
But importantly for the local economy, the bank suggested that iron ore was one commodity that would yet enjoy higher prices.
Despite downgrading its own iron ore price forecasts by 9 per cent, 8 per cent and 5 per cent over the three years from this year, Credit Suisse still expects benchmark iron ore prices to reach $US150 a tonne by mid-2013, well above yesterday's price of $US136 a tonne.
Dispelling suggestions of a sustained crash in iron ore prices, the bank is predicting a benchmark iron ore price of $US128 a tonne in 2014.
Goldman Sachs analyst Richard Coppleson defended the sector last night, saying negative sentiment on Chinese demand for commodities was "overdone".
While China's June iron ore imports were lower than in May, he said that in the first half of this year China imported more iron ore than in the first or second halves of last year. "While a recovery in the short term is unlikely, downside risk is also limited and we expect a normalisation of demand going into 2013," he wrote.
The market volatility came on a landmark day for Rio, which announced that chief financial officer Guy Elliott would step down next year after 32 years at the company. It is believed Mr Elliott will continue to serve on other boards, including at Royal Dutch Shell.
The company made several other internal changes yesterday. Energy chief Doug Ritchie will take on the new role of "group executive strategy", and will be replaced by current diamonds and minerals chief Harry Kenyon-Slaney.
Rio's president of international iron ore operations, Alan Davies, will be the new diamonds and minerals chief, at a time when the company is considering divesting its diamond business.