Shares of global mining groups listed in London were under pressure Tuesday as concerns about weak growth in China pushed iron ore prices to their cheapest in three months.
Benchmark iron ore futures in Singapore fell nearly 5% to $121.10 a ton, the lowest price since November. Iron ore is used in the production of steel and therefore its pricing on futures markets tends to have a tight correlation with expectations of demand from China’s construction industry.
Beijing on Tuesday cut a key mortgage rate by a record amount in an attempt to shore up China’s struggling property sector, but the move seemed to do little to assuage fears about slowing building activity and thus easing demand for resources such as iron ore and nickel.
’The fragility of China’s economy is weighing on minds as the country remains mired in a real estate slump with the latest attempt to stimulate demand highlighting the depths of the problems,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
In the U.K., shares of Rio Tinto
RIO,
lost nearly 2%, Anglo American
AAL,
fell 1.5%, Glencore
GLEN,
shed 1.2%, and BHP
BHP,
dropped 1.4% despite revealing results in which underlying profits of $6.60 billion for the six months ended Dec. 31 were a bit higher than analysts expected.
BHP, which is the world’s biggest listed miner with a London market capitalization of £120 billion ($151 billion), said it was cautiously optimistic on a demand recovery in developed economies in the next 12 months but it was not sure how effective government stimulus policies have been in China, its biggest customer.
The soft mining sector weighed on the FTSE 100
UK:UKX
in London, though the blue-chip barometer was up 0.2%, supported by strength in banks after Barclays said it would cut costs by £2 billion and pay out £10 billion in share buybacks and dividends between now and 2026.
Barclays
BARC,
jumped nearly 6%, Lloyds Banking shares added 0.5%
LLOY,
and NatWest
NWG,
climbed 0.7%.
The British pound
GBPUSD,
was choppy, but ultimately traded a little higher on the day around $1.2602, as traders absorbed comments made Tuesday by Bank of England Governor Andrew Bailey.
Speaking to lawmakers on the Treasury Select Committee, Bailey said bets by investors on interest rate cuts this year were not unreasonable but he noted there was also evidence of an upturn in Britain’s economy after it fell into recession at the end of last year, Reuters reported.
Markets currently indicate the BoE may cut interest rates from the current 5.25% by 25 basis points at its June meeting.
The 10-year Gilt yield
BX:TMBMKGB-10Y
on Tuesday fell 6.5 basis points to 4.044% as Bailey also said the central bank may start trimming rates before inflation has fallen to the 2% target.
We don’t need obviously inflation to come back to target before we cut interest rates,” Bailey said. “I must be very clear on that, that’s not necessary.”
