UK mining stocks extend losses on China concerns

Tue Feb 25, 2014 12:00pm EST

Related Topics

* FTSE 100 down 0.8 pct, miners slip 2.6 pct

* "Overbought" blue-chip index retreats

* CRH jumps 5 pct after earnings

By Atul Prakash

LONDON, Feb 25 (Reuters) - London-listed mining shares fell further on Tuesday, recording their biggest one-day slide in a month, amid concern that slower growth and lending curbs on the property sector in China would hurt metals demand.

The UK mining index dropped 1.8 percent, making it the biggest sectoral decliner, as it tracked losses in metals prices. Major mining companies such as Rio Tinto, BHP Billiton and Fresnillo falling 1.6-3.0 percent.

Miners retreated as banks cut lending to property developers and sectors like steel, cement and construction in China, the world's top metals consumer. The index, which dropped 1 percent on Monday, has lost about 4.5 percent in less than a week.

However, analysts remained optimistic on the sector's longer-term outlook and saw current weaknesses in mining shares as a buying opportunity.

"The metals and mining sector is very much driven by developments in China. Recent newsflow from China hasn't helped as it fueled concerns regarding slower growth in the country," Robert Parkes, equity strategist, HSBC Securities, said.

"But we think that Chinese growth is going to be more resilient than the market thinks. We like the sector as valuations are looking attractive, the global business cycle is slowly improving and earnings momentum is more positive."

Of the top seven decliners on the FTSE 100 index, five were mining stocks. But the UK mining index, which fell 16 percent last year, is still up more than 5 percent this year, outperforming the broader stock market.

"China is absolutely crucial to marginal demand for industrial metals," Macquarie strategist Daniel McCormack said.

"But I would probably use the recent pullback as an opportunity to accumulate mining stocks. The earnings momentum has turned, the sector is cheap and is pricing in a weakness in commodity prices. It's a sector that investors have been away from, but are increasingly looking at it now. So it could benefit from fund flows also," he said.

Weaker miners put pressure on the blue-chip FTSE 100 index , which snapped a seven-session winning run. The index, which touched its highest close in 14 years on Monday, ended 0.5 percent weaker at 6,830.50 points. UK banks fell 1 percent, in line with a broader market sell-off.

Traders said the FTSE 100, which came within striking distance this week of the record high it scaled 14 years ago, also sold a technical sell-off.

"Many stocks have become overbought, and it's not hard to argue that now is a good time to take some profit. These major resistance areas are rarely overcome at the first attempt and some consolidation would not be a bad thing in the short term," Bill McNamara, technical analyst at Charles Stanley, said.

The FTSE 100's relative strength indicator (RSI) reading on a 14-day basis touched 70 on Monday. If a market has an RSI above 70, it indicates it is technically "overbought" and often results in a pullback.

Among sharp movers, Irish building supplies group CRH climbed 6.2 percent. The company, which posted full-year earnings better than its guidance, said it expects the restructured business to boost margins and return to profit growth this year.

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