Metals and mining stocks were in freefall Thursday, with players in the base metals segment doing particularly poorly. Here's how much some of the worst-performing stocks in the metals and mining industry had fallen at the close of trading Thursday:
- BHP (BHP -0.37%): Down 2.9%.
- Freeport-McMoRan (FCX 4.89%): Down 5.1%.
- Steel Dynamics (STLD -1.09%): Down 4.2%.
While Freeport-McMoRan is a copper giant, BHP deals in iron ore, copper, and metallurgical coal, among other things. Steel Dynamics, as the name suggests, is a steel producer. Despite the diversity of their businesses, a couple of common themes hit them all Thursday. Those were the two Cs: China and commodity prices.
On Tuesday, iron ore prices crashed below $100 per metric ton for the first time in nearly five weeks, while copper prices fell for the fifth consecutive month in August. Steel prices also sank lower.
Blame China -- the world's largest consumer of most base metals, including iron ore, copper, and steel. The Chinese economy is faltering, and that has triggered a sell-off in metals in anticipation of a slump in demand. China faces several challenges: There's a growing property crisis, a severe drought, blackouts in key regions that are forcing factories to shut down, and coronavirus outbreaks in major industrial regions that have repeatedly led the government to institute intense lockdowns in accordance with its zero-COVID policy.
To make matters worse, the latest economic data from China is dour. Home sales tumbled, the purchasing managers' index fell, and economists are trimming their gross domestic product growth forecasts.
In short, China's economy is getting hit from all sides, and the repercussions are being felt keenly in the raw commodity markets that otherwise thrive amid manufacturing booms.
Meanwhile, many economists now believe a U.S. recession is imminent.
BHP recently predicted the iron ore market would remain in surplus through 2023. Likewise, BHP expects supply to rise in the copper and nickel markets as well, primarily because of an economic slowdown in China.
When the world's largest mining company predicts a slowdown in its end markets, that's a valid reason for concern.
Freeport-McMoRan subtly expressed caution in mid-August at the time of its most recent earnings release, when it said it will closely monitor market conditions and adjust its operating plans as required.
Commodity markets, however, are dynamic and volatile, and there are always multiple factors at play that could pull the markets in either direction. For instance, while a slowdown in China is making investors jittery, that nation's ongoing economic stimulus measures could prevent the worst, and thus help support demand for (and prices of) base metals. In another example, steel production from China's key regions is expected to fall in the second half of the year on planned production cuts. That could push steel prices back upward if demand doesn't dip much.
In another part of the world, the world's largest copper producer -- Chile's Codelco -- expects its output to fall further in 2023 after it cut this year's outlook due to delays in projects and less productive mines.
Long story short, while prices of stocks like BHP, Freeport-McMoRan, and Steel Dynamics can fluctuate with commodity prices, it's hard to predict how much further they might fall, if they do at all. That especially holds true for BHP and Freeport McMoRan shares that are already trading close to their 52-week lows.