By Justin Scheck, Rhiannon Hoyle and Sarah Kent
Shares of some of the world's biggest natural-resources
companies slouched to multiyear lows Monday, outpacing a broader
market rout sparked by concerns over a slowing economy in
China.
Mining giants BHP Billiton PLC, Anglo American PLC and Glencore
PLC each lost more than 7% Monday. Royal Dutch Shell PLC and BP
PLC--Europe's largest oil companies--each slid more than 6%,
compared with a drop of 4.7% for the FTSE 100 index.
Monday's drops compound a year of disappointments for resource
companies, which have struggled with persistent oversupply and
increasingly questionable demand from China. BP has fallen more
than 30% over the past year; Glencore has more than halved.
Resource companies' shares on Monday largely tracked tumbling
prices for the commodities they produce, including copper--which
sank to its lowest point in more than six years--and oil, with
Brent crude falling below $45 a barrel for the first time since
March 2009.
China for years has been a major market for many commodities,
buying more than 45% of the world's base metals, which include
copper, aluminum and nickel. It is also the world's largest
iron-ore consumer and the second-largest oil consumer, after the
U.S.
But growth in Chinese industrial production, retail sales and
other economic measures has slowed in recent months, dragging down
forecasts for big mining companies already suffering from a long
slump in commodities prices.
For oil producers, China's demand concerns are converging with a
world-wide glut that is unlikely to ease soon. Production from
countries including Saudi Arabia and Iraq remains robust, defying
many analysts' predictions of an oil-price recovery in the latter
part of this year. Crude in the U.S. is trading at less than $40 a
barrel, down from more than $100 a barrel last year, dragging
investor sentiment down with it.
Investing in oil companies these days is "a matter of looking
for the least ugly," said Pascal Menges, an energy-fund manager at
Lombard Odier. Earlier this year, Mr. Menges said, he anticipated
that the oil price would start to recover by the end of 2015. Now,
he expects low prices to continue at least through mid-2016.
Mr. Menges said he is focusing on small producers in pockets of
the U.S. that have managed to keep their debt down. He said he is
staying away from big producers like Shell and BP, whose size makes
it harder to cut costs.
"The oil-and-gas sector is going be friendless when the oil
price is as it is at the moment," said Paul Mumford, a fund manager
at Cavendish Asset Management who owns shares of Shell and BP.
David Kotok, chairman of Cumberland Advisors, which oversees
$2.5 billion in assets, said his firm pulled out of energy
investments when the oil price still stood above $100 a barrel. He
said prices could potentially fall to $30 a barrel as Saudi Arabia
continues to pump crude full-throttle.
Monday's selloff in natural-resources companies began in
Australia, where two big mining companies reported disappointing
financial results that raised questions about miners' balance
sheets as well as weak commodity prices. South32 Ltd. fell 7.6%,
taking its overall slide since BHP Billiton PLC spun it off in May
to 34%. Fortescue Metals Group Ltd., the world's fourth-largest
producer of iron ore, tumbled 15% after reporting an 88% dive in
annual earnings.
It continued as the London and New York markets opened. Shell,
which is down more than 35% over the past year, tumbled along with
BP. Exxon Mobil Corp. and Chevron Corp. were each down about 3% in
early trading.
But none have been hit as hard as mining-and-trading giant
Glencore, which is exposed to both metals and oil prices. Its
shares have more than halved since the beginning of the year,
tumbling to their lowest level since the company's 2011 initial
public offering. That has made it the worst-performing stock in the
FTSE 100 so far this year.
There could be worse to come. Oil producers increasingly are
bracing themselves for a period in which prices stay lower for
longer, while the outlook for industrial metals remains bleak so
long as the meltdown in China persists.
"I would not rule out another leg down in the sector," said Alon
Olsha, metals and mining equity analyst at Macquarie Group. "It's
not pricing in the worst-case scenario."
Alex MacDonald and Scott Patterson contributed to this
article.
Write to Justin Scheck at justin.scheck@wsj.com, Rhiannon Hoyle
at rhiannon.hoyle@wsj.com and Sarah Kent at sarah.kent@wsj.com
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(END) Dow Jones Newswires
August 24, 2015 14:04 ET (18:04 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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