FTSE 100: What is weighing down mining stocks?

A handful of mining stocks were at the bottom of the FTSE 100 index on Monday as concerns over the prospect of a global economic slowdown continued to weigh on the minds of investors.

Anglo American (AAL.L), Antofagasta (ANTO.L), Fresnillo (FRES.L), Rio Tinto (RIO.L) and Endeavour Mining (EDV.L) were among the companies at the bottom of the basket, at the time of writing, as metal prices remained under pressure due to demand fears.

“A stronger dollar, weakening global manufacturing activity and a weaker-than-expected economic recovery in China have weighed on metals commodities lately, as well as on mining stocks,” Piero Cingari, independent macro analyst, told Yahoo Finance.

“Despite that I’m optimistic about gold miners for the second half of the year. There are many players (one is Newmont (NEM)) trading at heavily discounted valuations compared to the current price of gold. I think the market is awaiting the results of this quarter before reversing the trend,” he added.

Cingari also said he’s “slightly less bullish on copper miners” until there’s more policy stimulus to be seen in China.

Read more: Trending tickers: Glencore | Novartis | Frasers | UBS

Metal prices outlook

The latest slump in mining stocks comes after the World Bank recently projected metal prices to fall by 8% in 2023, and a further 3% in 2024.

It also highlighted in its recent commodities report that the first quarter of this year reflected optimism on a strong China recovery with the bank’s metals and minerals price index rising 10%.

However, it noted how that sentiment changed and most prices receded from their January highs by the end of the quarter.

It said a recovery in production is expected to lower aluminium prices (ALI=F) by 11% in 2023, while copper prices (HG=F) are forecast to fall 4%, compared with last year – and by a further 6% in 2024. Meanwhile, it forecast nickel prices to drop by about 15% in 2023.

“In the longer term, however, the energy transition could significantly lift the demand for some metals, notably lithium, copper, and nickel,” said World Bank lead economist Valerie Mercer-Blackman – and as also recently reported by Yahoo Finance.

Read more: FTSE rises as UBS completes Credit Suisse takeover

Year-to-date performance

Matt Britzman, an equity analyst at Hargreaves Lansdown, shared with Yahoo Finance an overview of how mining stocks have performed for the year-to-date.

“2023 has seen a reversal of fortunes for many of the largest miners in the FTSE 100. The mix of higher interest rates, sticky inflation, and growing concerns about potential recessions across the globe means the prices of key commodities have come down. Earlier in the year, we saw the effect when many of the largest miners reported falling profits at full-year results.

“But it's worth taking a step back and remembering we're coming off the back of a period of booming prices. 2021 and 2022 saw record prices for several key commodities, like copper, iron ore and coal, as global economies came out of lockdown periods and war broke out in Ukraine, sending energy markets into turmoil. The picture has changed, as is the life of a miner, and rising costs along with weaker economic growth have weighed on the sector,” he said.

Britzman also noted how “riding the cycle” is “part and parcel of investing” in a cyclical sector, and said it's more important to focus on the longer-term growth drivers – of which there are many.

Read more: Interest rates: Bank of England policy-maker hints at further rises

“The energy crisis seen over 2022 and a global push toward net-zero by 2050 both support the same message – a need to decarbonise, lower costs, and boost resilience. Reaching those targets means rethinking how we live and work, whilst improving technologies to enable that," he added.

"That means a shift in the demand dynamics for a host of metals needed to expand renewable energy sources, evolving battery technology, and build green infrastructure. There's an opportunity there for a host of companies in the sector."

The analyst also highlighted how the picture for gold (GC=F) has been somewhat different with its price rising over the past 18 months to reach record highs as investors and central banks piled cash into the asset, seen as a safe haven in difficult times.

“That'll be a tailwind for gold miners, and one that's likely to continue over the year as uncertainty looks set to remain,” Britzman concluded.

Watch: Markets in 3 Minutes: Fed and PBOC Matter More Than ECB and BOJ

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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