Miners' gains evaporate as iron ore prices drop

The global mining industry has given up on all its share price gains during the year as investors focus on the slowdown in China and chip shortages weighing on the automotive industry. The MSCI World metals and mining index rose more than 25 percent during the year through early May as traders hope the pandemic will usher in a new era of commodity-intensive growth and governments place greater emphasis on job creation and environmental sustainability. But even as miners posted record profits and large dividends following rising commodity prices, the industry has since retreated. The MSCI index lost all its gains for the year as parts of the raw materials market were seized by concerns over the impact of property developer Evergrande's debt crisis on construction activities in China. Bank of America estimates that such activities account for 29 percent and 11 percent, respectively, of global steel and copper demand.

Major iron ore producers, a group that includes BHP, Rio Tinto, Fortescue Metals Group and Vale, were hit hard during the downturn as the price of the steelmaking commodity fell to $94 on Monday from a record $233/t in May. Beijing has implemented rapid steel production cuts in an attempt to slow its construction-intensive economy. If this policy continues, iron ore demand in the second half of the year may be 100 million tons lower than in the first half and prices may test $70.

Miners that produce palladium and platinum, which are used to reduce harmful fumes from cars, also suffered last month as vehicle production slowed due to ongoing chip shortages. Not all goods go south. Coal prices are rising amid supply constraints and resurgent Asian demand, helping to bolster shares in Glencore. Aluminum prices also remained strong as Chinese smelters faced power constraints. The mining industry is also doing much better financially than the Chinese commodity recession in 2015. Debt is under control, spending on new projects has been curtailed, and most major miners now have profit-linked dividend policies.