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The global mining sector has foregone all of its stock price gains for the year as investors focus on slowing growth in China and chip shortages plaguing the auto industry.
The MSCI World Metals and Mining Index had climbed more than 25% in the year through early May, with traders hoping the pandemic would usher in a new era of commodity-intensive growth , with governments placing greater emphasis on job creation and environmental sustainability.
But the industry has since retreated, even as miners reported record profits and huge dividend payments due to soaring commodity prices.
The MSCI Index lost all of its gains for the year as parts of the commodities market were gripped by concerns over the impact of property developer Evergrande’s debt crisis on construction activity in China . Bank of America estimates that this activity accounts for 29% and 11% of global demand for steel and copper, respectively.
Major iron ore producers – a group that includes BHP, Rio Tinto, Fortescue Metals Group and Vale – were hit hard by the pullback as the price of the steel industry collapsed from a record $ 233 per ton in May at $ 94 Monday.
Beijing has imposed rapid cuts in steel production in an attempt to slow its construction-intensive economy. If this policy persists, demand for iron ore could be 100 million tonnes lower in the second half of the first half, and prices could test $ 70.
“With the [Winter] With the Olympics fast approaching and several steel production centers near Beijing, it is highly likely that the current restrictions will prevail until 2022, âBofA said in a report.
Miners producing palladium and platinum, which are used to reduce harmful fumes from cars, also suffered from the slowdown in vehicle production last month due to the continued shortage of chips.
Not all products go south. Coal prices are skyrocketing amid supply constraints and rebounding demand in Asia, helping to support Glencore shares. Aluminum prices also remained high as Chinese smelters faced electricity constraints.
The mining sector is also in much better financial shape than it was during the last commodity drop caused by China in 2015. Debt is under control, spending on new projects has been cut and most of large miners now have dividend policies tied to profits.