close
close

Why BHP, Freeport-McMoRan and Steel Dynamics shares fell Thursday

what happened

Metals and mining stocks plunged Thursday, with players in the base metals segment performing particularly poorly. Here’s how much some of the metals and mining industry’s worst-performing stocks tumbled at Thursday’s close.

  • BHP (BHP 0.66%): 2.9% decrease.
  • Freeport-McMoran (FCX 0.75%): 5.1% decrease.
  • steel dynamics (STLD 0.78%): 4.2% decrease.

So what

Freeport-McMoRan is a copper giant, while BHP deals in iron ore, copper and coking coal. Steel Dynamics is, as the name suggests, a steel manufacturer. Despite the diversity of business, some common themes struck them on Thursday, these being his two Cs for China and commodity prices.

Iron ore prices fell below $100 a tonne for the first time in nearly five weeks on Tuesday, while copper prices fell for the fifth straight month in August. Steel prices also fell.

China, the world’s largest consumer of most base metals, including iron ore, copper and steel. China’s economy is sluggish, which is causing metals to sell in anticipation of weaker demand. China faces several challenges. A growing property crisis, severe drought, power outages in key areas forcing factories to close, and the coronavirus outbreak in key industrial areas have led the government to repeatedly implement severe lockdowns in accordance with the zero limit. COVID policy.

To make matters worse, China’s latest economic data are bleak. Home sales plummeted, Purchasing Managers’ Index fell, and economists cut gross domestic product growth forecasts.

In short, the Chinese economy has been hit on all fronts, and the impact is being felt strongly in the raw commodities market, which is thriving amidst a manufacturing boom.

Meanwhile, many economists now believe a US recession is imminent.

So

BHP recently forecast that the iron ore market will remain in surplus until 2023. Similarly, BHP expects supplies to increase in the copper and nickel markets, mainly due to the economic slowdown in China.

When the world’s largest mining company predicts a slowdown in end markets, it’s good reason to be concerned.

Freeport-McMoRan subtly expressed caution during its latest earnings announcement in mid-August when it said it would monitor market conditions closely and adjust its business plans as necessary.

However, commodity markets are dynamic and volatile, with multiple factors constantly at work that can pull the market in either direction. A slowdown in China, for example, has investors worried, while the country’s ongoing stimulus may prevent the worst and support demand (and prices) for base metals. In another example, steel production from key regions in China is expected to decline in the second half of the year due to planned production cuts. Steel prices could rise again if demand does not drop significantly.

Elsewhere in the world, Chile’s Codelco, the world’s largest copper producer, expects production to fall further in 2023 after lowering its outlook for this year due to project delays and underproductive mines. I expect.

Simply put, stocks like BHP, Freeport McMoran, and Steel Dynamics can fluctuate with commodity prices, but if they do, it’s hard to predict how much they’ll fall. This is especially true for BHP and Freeport McMoRan stocks, which are already trading near 52-week lows.

Neha Chamaria has no positions in any of the mentioned stocks. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.

Leave a Comment