Mining Stocks Drop to Three-Week Low as Metals Fall on Fed

  • BHP Billiton delines 4%, Anglo closes at 16-year low
  • Metals retreat as Fed signals rates may increase by December

Mining companies around the world tumbled to a three-week low as metals prices retreated and the Federal Reserve signaled it may raise interest rates as early as December.

The Bloomberg World Mining Index fell as much as 1.9 percent to the lowest since Oct. 7 and is down 26 percent this year. BHP Billiton Ltd., the world’s biggest mining company, and Glencore Plc both closed 4 percent lower in London. Rio Tinto Group fell 2.4 percent while Anglo American Plc dropped 4.6 percent to settle at the lowest since 1999.

Mining companies have been hit by slowing economic growth in China that has cut demand in the biggest commodities user and compounded oversupplies. The nation’s Premier Li Keqiang highlighted a minimum growth estimate of at least 6.53 percent in the coming five years that could indicate the leadership’s readiness to accept the weakest period of expansion since the economy was opened up more than three decades ago.

Most industrial metals declined, with copper falling 1.3 percent on the London Metal Exchange and aluminum losing 0.7 percent to near a six-year low. The Fed on Wednesday dropped a reference to global risks and asserted that economic growth remains “moderate.”

That added to speculation that the central bank may raise borrowing costs this year. A gauge of the dollar was near the highest since August, making commodities denominated in the currency more expensive.

Mining Ratings

Analysts at Liberum Capital Ltd. cut their ratings on BHP and Rio, the two biggest miners, to sell in a report Thursday, citing a downturn in China’s steel industry that will sap demand for the miners’ key profit driver, iron ore.

“Chinese iron ore imports, resilient to date, are on the cusp of turning negative as its steel industry grapples with unsustainable margins and leverage,” Liberum’s Richard Knights and Alexandre Schmidt wrote. “With rationalization seemingly on the horizon, the next leg down in iron ore prices also looks imminent.”

Ore with 62 percent content delivered to Qingdao lost 0.6 percent to $49.65 a dry ton on Thursday, the lowest price since July 9, according to Metal Bulletin Ltd. The decline has snapped a trading range of $50 to $60 that held since July 10. Iron ore bottomed this year at $44.59 on July 8.

China needs annual growth of at least 6.53 percent in the next five years to meet the government’s goal of establishing a “moderately prosperous society,” Li said in an Oct. 23 speech to Communist Party members, according to people familiar with the matter who asked not to be identified as the remarks weren’t public. Communist Party leaders Thursday conclude a four-day gathering to discuss their 2016-20 five-year plan for the nation, the first since President Xi Jinping and Premier Li took office.

Private economists have predicted a reduction in the five-year growth target to 6.5 percent, down from 7 percent in the current plan -- a reflection of the Communist leadership’s continuing attempts to move away from debt-fueled expansion.

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