Why mining stocks have rebounded despite BHP’s profit slump
Weighed down by China’s stuttering economic revival and caustic inflationary headwinds, mining stocks have taken a battering in their share price this summer – and with BHP posting a sharp drop in profits today, it would be natural to assume another downturn was on the way.
China’s gloomy economic data has chipped away at the share prices of the world’s largest miners for months, with no evidence of a floor in sight.
Yet, there now appears to be a recovery underway in the share price of many London-listed operators today.
Anglo American (1.62 per cent), Antofagasta (2.09 per cent), Endeavour (1.65 per cent) and Rio Tinto (1.25 per cent) reported firm gains in today’s trading on the London Stock Exchange at close of play.
Commodities giant Glencore (2.33 per cent) also reported a boost in its share price.
This is in stark contrast to the prevailing narrative around mining stocks.
Even BHP was only down 0.89 per cent despite posting its lowest earnings since the pandemic.
Analysts suggested that investors have spotted a deal.
Russ Mould, investment director for AJ Bell told City PM that the gloomy economic climate meant it was likely investors were deciding they “no longer want paper assets, and want hard assets instead”, pivoting to opportunities in mining.
“It seems counter intuitive, with worries about Chinese construction and demand, and ongoing rising trend in government bond yields in the US – with highest 10-year treasuries 10 year since 2007,” he admitted.
However, he argued there was longer-term thinking from investors despite painful reductions in dividends, with a resilient future outlook towards China despite the latest property crisis and slashed steel production.
Susannah Streeter, senior investment and markets analyst noted that China’s economic situation was more of a mixed bag than the negative media coverage has suggested.
She noted that “other sectors have held up better, such as infrastructure and car manufacturing” which have helped keep commodity demand “relatively robust.”
BHP has cut its forecast for China’s GDP growth to 5-5.5 per cent from 5.75-6.25 per cent.
But BHP boss Mike Henry told reporters this morning that the company still expects China to produce more than a billion metric tons of steel this year for the fifth consecutive year.
He argued that “China’s trajectory is contingent on the effectiveness of recent policy measures” – such as on the country’s housing market, with property giant Country Garden on the verge of defaulting.
Either way, miners’ fates remain very much tied to the Chinese economy.