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Why Southern Copper, Cleveland-Cliffs, and Denbury Resources Slumped Today

By Dan Caplinger – Nov 23, 2018 at 1:35PM

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Natural resources stocks led the overall market lower.

Wall Street seemed to have more of its attention focused on shopping than the stock market on Friday, with the holiday-shortened session seeing relatively little trading volume. Yet it wasn't entirely quiet, as major benchmarks fell largely due to concerns about a key sector of the economy. With reports of extremely high supplies of oil in inventory, energy markets saw dramatic declines, with West Texas Intermediate crude approaching the $50-per-barrel mark. That sent ripples across the market, but natural resources stocks were hit especially hard. Southern Copper (SCCO -0.58%), Cleveland-Cliffs (CLF -0.14%), and Denbury Resources (DNR) were among the worst performers on the day. Here's why they did so poorly.

Southern Copper gets tarnished

Shares of Southern Copper dropped 10.5% on a bad day for many mining stocks. Copper prices were down 1%, failing to make any headway in reversing the 15% decline that they've suffered since mid-year. Many investors see copper prices as a proxy for levels of future industrial activity, and so the slump has raised concerns among metals-market watchers that the global economic expansion could be in jeopardy. Without the diversification that some other major players in the copper industry have, Southern Copper needs to see economic sentiment improve if it wants to mount a recovery.

Several copper fittings sitting on a table, with promotional language superimposed.

Image source: Southern Copper.

Tumbling over the Cliffs

Cleveland-Cliffs stock fell nearly 8% in response to concerns about the industry that the company supplies. As a producer of iron ore, Cleveland-Cliffs counts on demand from steelmakers to drive its business, and the uncertain state of trade relations between the U.S. and China has put steel in the limelight lately. Cleveland-Cliffs has responded well in the wake of a crisis that threatened the company, restoring its dividend and getting its balance sheet into healthier shape. Yet between trade tensions and comments from CEO Lourenco Goncalves that many of the stock's followers saw as unprofessional at best, Cleveland-Cliffs shareholders haven't yet reaped the rewards of the company's fundamental improvement.

Denbury faces a slippery slope for oil prices

Finally, shares of Denbury Resources finished lower by 8%. The oil and gas exploration and production company's stock-price decline continued a string of drops, responding to the poor performance of U.S. crude oil prices. The reason why Denbury is among the hardest-hit players in the energy space has to do with the relative weakness of its balance sheet, which is laden with debt. Denbury investors had hoped that the company would be able to take advantage of the rise in oil prices earlier in the year to boost cash flow and get that debt paid down, but if a supply glut sends energy markets lower for a while, then those hopes could get crushed -- at a time when rising interest rates are already threatening to boost debt-related expenses in the future.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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