Mining stocks took a hammering last week, prompting questions as to whether the recent bull run in metal prices has come to an end.
As steel and iron futures in China slid, share prices in iron ore and base metal miners were sold off around the world in a bearish wave of sentiment sparked, according to mining.com, by the continued appreciation of the Chinese currency against the U.S. dollar.
The Renminbi hit 6.447 against the dollar, gaining nearly 7.8% so far this year and a 21-month peak that appears to be worrying policymakers concerned about China’s export competitiveness.
According to the MetalMiner index, the Dalian exchange 62% iron ore settlement price closed at yuan 534 per metric ton last week, down nearly 7%. Yet, steel demand remains robust in China and iron ore stocks that China’s port dropped for a fifth straight week according to commodity news, to 133 million tons the lowest since May. Indeed, because the currency is still appreciating, it is reported traders like to buy future cargoes in dollars, stockpile them and sell in Renminbi.
Investors Wary of Environmental Measures
One fear weighing on investors of mining stocks is China’s drive for environmental improvements, which is widely expected to result in the closure of steel mills, power plants, aluminum smelters and other sources of pollution (such as zinc and copper smelting).
According to the article, China plans to conduct 15 rounds of inspections during its new campaign starting this month and continuing until March of next year. Any plants that do not meet tougher environmental standards face closure. The resulting loss of production capacity, it is feared, will hit import demand for raw materials such as iron ore and bauxite.
Not surprisingly, iron ore spot prices declined toward the end of the week, but some are seeing current weakness as a natural correction to months of bullish strength.
Physical demand remains strong, suggesting local traders are to frightened by Beijing’s environmental program just yet. Most are waiting for November, when the heating season starts and enforced closures are expected.
by Stuart Burns