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Why mining stocks are falling

Mining industry / Analytics

Shares in commodity companies fell amid fears of a slowdown in global economic growth.

Why mining stocks are falling

According to S&P Global Market Intelligence, shares of all mining companies fell sharply in August, regardless of the types of raw materials they produce: whether they are companies focused on one type of product, for example, copper, such as Freeport-McMoran, Antofagasta and Southern Copper, or broader miners such as Rio Tinto (iron ore, aluminum, copper, and coal) and BHP Group (iron ore, copper, coal and oil).

At the end of the month, mined metal prices were highly volatile, and investors were not in agreement on whether they will continue to stagnate or if this is a temporary decline on the way to a long-term sustainable recovery from the 2015-2016 downturn.

All this is happening against the background of the instability of the global economy and the ongoing trade conflict between the two largest countries. Copper prices and the metals and minerals index (a weighted average of prices for aluminum, copper, iron ore, zinc, tin, lead and nickel) have declined recently, and it is no coincidence that leading indicators of economic development such as PMI - Purchasing Managers Index , calculated by the American Institute of Supply Management, and IFO - the German Business Climate Index also fell.

An August PMI of 49.1 percent indicates that the manufacturing economy is shrinking and is a wake-up call for the mining industry. In addition, German GDP declined slightly in the second quarter, while China's growth continues to slow due to continued concerns over the trade conflict.

What's next

Unfortunately, it is still difficult to understand how the trade dispute will end and whether business leaders will be able to overcome the current economic downturn. However, the leading mining companies remain confident in the future and plan to increase costs in the coming years.

For example, BHP has foreseen $ 7.6 billion in capital and exploration spending in fiscal 2019, up from $ 6.8 billion in 2018, and expects to spend about $ 8 billion in 2020 and 2021. Likewise, Rio Tinto is increasing spending by $ 0.5 billion in 2019 from $ 5.5 billion in 2018 and plans to spend $ 6.5 billion in 2020 and 2021. Freeport-McMoran has raised its 2019 and 2020 spending plan to $ 2.6 billion from $ 2.5 billion.

These positive trends suggest that if the growth prospects of the global economy improve in the near term, there is potential for the sector to grow.

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