LONDON/SYDNEY/NEW YORK (Reuters) - Slumping metals and oil prices dragged mining, metals, steel, energy and other resources company shares lower across the world on Wednesday.
Investors hammered mining and energy stocks on renewed fears that a global recession would further slash demand for commodities and after BHP (BHP.AX) BLT.L warned that Chinese demand was set to weaken.
In Europe, the DJ Stoxx basic resources index .SXPP was off 5.8 percent and the DJ Stoxx oil and gas index .SXEP down 4.4 percent. In New York, the Standard & Poor’s coal and fuel index .gspcoal was down 15.1 percent and the S&P steel index .gspsteel lost 5.4 percent.
Big-name New York Stock Exchange companies like Alcoa Inc (AA.N) and U.S. Steel Corp (X.N) saw their shares fall over 11 percent while Freeport-McMoRan Copper & Gold Inc (FCX.N), which on Tuesday reported a drop in third-quarter profit because of falling copper prices, fell more than 14 percent to a four-year low.
“At the moment, there’s potentially an overshoot scenario and indiscriminate selling of mining stocks, which are currently not in vogue,” said one London analyst.
“This shows there are further concerns about a severe global recession,” said Brian Hicks, co-manager of the resources fund of U.S. Global Investors in San Antonio, Texas.
He said the strengthening dollar has prompted investors to be more bearish on commodities. “There is nowhere to hide; even gold is feeling the effect of the run on the dollar.”
Analyst Charles Bradford, of Bradford Research/Soleil in New York said the run-up in metals prices in the last few years, which had copper rising from 60 cents a pound to over $4, fooled investors into believing in the idea of a “super-cycle” lasting 15 years.
“People got carried way with euphoria and got into ventures that defied metals pricing rules,” he said.
Benchmark copper futures on the London Metal Exchange fell 5 percent to a three-year low and oil prices shed 4 percent on worries about demand and a stronger dollar. In New York, COMEX copper for December delivery plunged to its lowest level in three years and was down 16.55 cents at $1.8415 by afternoon.
Chinese hunger for raw materials has driven a boom in commodities markets in recent years, but BHP added to recent warnings about the impact of a downturn.
“China has not been immune to the global slowdown,” the world’s biggest miner said. “We expect volatility and uncertainty to continue in the short term.”
The warning follows a series of similar comments from major miners, including Rio Tinto, whose chief Tom Albanese rocked markets last week when he said commodity demand in China was under threat.
But BHP was confident that industrialization in China would continue to drive longer-term demand for its major commodities, which also include aluminum, coal and nickel.
While other mining shares were tumbling, Rio shares swam against the tide in Australia, ending 5.4 percent higher on the back of speculation mostly linked to BHP’s all-share takeover offer, currently worth about $70 billion.
But fund managers and analysts were skeptical of the rumors, which included talk of a counter-bid from China, and Rio shares fell in London even before the company weighed in.
Rio, which has spurned the BHP offer as undervaluing the group and its prospects, issued a statement in response to a query from the Australian Stock Exchange.
“The company notes the speculation ... that the company is in negotiations or will enter into negotiations with BHP Billiton and confirms that it is not aware of any basis for that speculation.”
Dealers and fund managers said the most likely explanation for Rio’s share price jump was that a long-only investor, such as a pension fund, had probably switched out of BHP shares into Rio’s, as Rio Tinto’s discount to the value of the bid had expanded too much.
The discount blew out last week to as much as 28 percent as doubts grew about the bid going ahead, but it had narrowed to 15 percent by the end of Australian trading on Wednesday.
Rio shares in London closed down 6.68 percent, outperforming an 8.54 percent fall in the UK mining index.FTNMX1770.
Additional reporting by Sonali Paul in Melbourne and Mark Bendeich in Sydney; Editing by David Holmes and Gerald E. McCormick