Mining companies suffered a harsh reversal on Tuesday as concerns about China’s stimulus eased. Glencore (LON: GLEN) share price has dropped by more than 4% from its highest level this week. It remains about 17% above the lowest point in September.
Rio Tinto (RIO) shares have dropped by over 7.8% from the highest point this month, and is hovering at its lowest level since September 25. It remains 12% above its lowest level in September.
Anglo American (AAL), another top mining giant, dropped by 7.6% from its highest level this month.
Commodity prices reverse
Glencore, Rio Tinto, and Anglo American’s stock plunge coincided with the deep dive of top commodities. Brent and West Texas Intermediate (WTI) fell by over 2% to $80 and $75, erasing some of the gains made in the past few days.
Other commodities have also dropped sharply. Copper fell by over 2.45% to $4.45, while silver plunged has retreated by 1.50% to $31. Still, these commodities remain substantially higher than the lowest level this month.
These commodities slumped after Chinese markets reopened after a week-long holiday, and as officials met to deliberate on more stimulus measures.
The Hang Seng index pared back some of the recent gains, falling by over 10% on Tuesday. While Chinese indices like the Shanghai Composite and while the CSI 300 index surged initially, they ended the session significantly lower than their highs.
The retreat happened after a statement by Chinese officials underwhelmed the market. In a research note, an analyst from 22V Research said:
“The meeting underwhelmed our modest expectations and seemingly those of investors. While Beijing is keen to revive equities, it does not feel compelled to abandon financial restraint to aggressively stimulate the real economy.”
The meeting came as the World Bank warned that the recently launched stimulus measures will not have a big impact on the economy. The organisation expects that China’s GDP will not hit the 5% GDP target this year.
China stimulus hopes fade
Hopes of more stimulus from China explain why these companies surged in the past few weeks. This is notable because China is the biggest commodity buyer in the world. It is also the biggest market for companies like Glencore, Anglo American, and Rio Tinto.
Some analysts believe that the recent stimulus measures will have a minimal impact on key sectors like manufacturing and construction.
Besides, China still maintains a substantially high level of incomplete housing units after the collapse of companies like Country Garden. As such, it will likely take more time for the country’s housing sector to bounce back, which is notable as it is the biggest consumer of key commodities.
Anglo American, Glencore, and Rio Tinto need China’s economy to recover as their revenues retreat.
The most recent financial results showed that Anglo America’s revenue dropped from $15.6 billion in the first half of 2023 to $14.4 billion this year. Its basic earnings per share also dropped from $1.38 and $106. This decline happened as the prices of key commodities it sells plunged.
Read more: Why China’s latest monetary stimulus might fall short of reviving its sluggish economy
Glencore, Rio Tinto, and Anglo American earnings
Glencore’s revenue rose by 9% to $117 billion, while its adjusted EBITDA and EBIT fell by 33% and 55% to $6.3 billion and $2.85 billion, respectively. The company also decided to maintain its coal portfolio, saying:
“Glencore’s Board, considering both risk and opportunity scenarios, endorsed the retention, rather than demerger, of the coal and carbon steel materials business, as currently providing the optimal pathway for demonstrable and realisable value creation for Glencore shareholders.”
Rio Tinto’s cash generated from operating activities rose by 1% to $7.05 billion, while the underlying EBITDA improved by 3% to $12 billion. Its sales rose by 1% to $26 billion.
These companies blamed lower prices for their weak performance. As a result, most are considering acquisitions to boost growth. Rio Tinto is considering making a bid for Arcadium Lithium as it seeks to boost its transition metal portfolio. The company is also considering making a bid for Teck Resources, as we wrote a few months ago.
Meanwhile, BHP, the biggest mining company in the world, failed in its bid to acquire Anglo American. Analysts believe that it is now considering making more buyouts, especially those in the copper industry.
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