Mining company stocks plunged across the world on Tuesday on continued fears that China’s economic slowdown would cause metal prices to tumble further.
The carnage was most apparent at Switzerland-based trader and producer Glencore PLC, where shares fell below £1 ($1.55) for the first time, down more than 16%. The beleaguered company’s shares recovered slightly but closed down 10%.
But Tuesday’s tumble was another hammer on the head of almost all mining companies.
Freeport-McMoRan Inc., the biggest American miner, lost almost 1.5% of its value in afternoon trading in the U.S. In the U.K., Anglo American PLC fell 6.73%, while Anglo-Australian miners BHP Billiton Ltd. and Rio Tinto PLC ranked among the 10 biggest losers in London trading.
In London, the FTSE 350 mining index lost 2.5%. In Toronto, a major center for mining finance, the stock market’s materials index—home to miners of gold, copper and potash, among other commodities—was down 4.2% on the day, bringing its 12-month drop to 30%.
The losses were an extension of a pattern of market volatility since the U.S. Federal Reserve said on Thursday it wasn’t raising interest rates this month. The Fed’s decision sparked renewed fears over the sluggish pace of global growth and has left investors second-guessing when the first rate move will come.
Miners also have been roiled by a long rout in commodities prices, with gold, copper and iron ore trading at multi-year lows in recent weeks on worries that demand is slackening in China, the world’s biggest consumer of many raw materials.
On Tuesday, there were widespread worries that data to be released late Wednesday will show a continued decline in Chinese factory activity.
The copper price, the largest earnings driver for Glencore and Freeport-McMoRan, led a group of metals’ prices lower in afternoon European trading, falling 3.6% to $5,036 a ton. Meanwhile the price of zinc, a major metal for Glencore, fell to a more than six-year low of $1,640 a ton on Tuesday.
Credit Suisse Group AG on Tuesday slashed earnings estimates across the mining sector.
“Until China demand and emerging market currencies find a floor, it will remain challenging to put an absolute floor on commodity prices,” Credit Suisse said in a note.
Even in the gold mining sector, traditionally considered an outlier from global macroeconomic forces, companies were shellacked on Tuesday.
North America’s two major gold producers, Toronto-based Barrick Gold Corp. and Colorado-based Newmont Mining Corp. both suffered share price losses over 5%.
The mood is particularly bleak at the Denver Gold Forum, an annual mining conference this week. Chief executives of the world’s biggest gold companies watched helplessly Tuesday as their share prices fell.
Mining executives are “projecting optimism, but off the record, they’re very concerned about where prices are going,” says Paul Sacks, chief investment officer of New York-based Aurum, a start-up gold trading fund.
A big worry is that “nobody really sees where the bottom is, that’s the $64,000 question,” he added.
As share and metals prices plummet, mining companies are increasingly responding by slashing costs.
Investment and capital spending are “increasingly difficult as the gold price drops,” said Chuck Jeannes, president and chief executive of Vancouver-based Goldcorp, Inc., one of the world’s biggest miners. “We are laser-focused on reducing operating costs.”
Glencore has become a symbol for investor jitters around Chinese demand. The company is exposed to a host of commodities — from copper to zinc to coal — that have experienced huge price drops thanks to uncertain Chinese demand.
The company also has heavy debt — something that it needs to finance its massive commodities trading arm but that has become a liability as its cash flow sinks and questions get raised about its credit rating.
The company issued $2.5 billion in new shares last week and announced a host of cost cuts, asset sales and other measures to restore investors’ faith — to no avail so far, analysts said.
“Glencore has suffered a complete loss of confidence from investors,” Credit Suisse said in a note to clients on Tuesday. The company’s stock could rebound, the bank said, if it delivers on its second half earnings targets.
Glencore’s shares are down nearly two thirds since the beginning of the year and are down more than 80% since the company’s London share listing in 2011. All of the share price gains made since the company’s debt-reduction plan was announced have been wiped out.
Analysts were struggling to explain why Glencore’s stock had fallen so much more than others, except to note that funds are likely short selling the stock in greater numbers.
“It’s too big a move,” said Liberum Capital analyst Ben Davis. “This feels more technically driven than fundamentals [driven],” he noted.
The Wall Street Journal