Mining stocks are bearing the brunt of the market mauling, as investors abandon the once-hot sector in fear of a global recession that sinks demand for key industrial commodities such as copper and coal.
Every sign of weaker demand is being seized upon by investors as evidence mounts that mining is facing a swoon. Miners this week have warned of customers delaying orders and unexpected cancellation of orders. In China, prices for steel – made from coal and iron ore – are falling, and new data Thursday showed a gauge of Chinese manufacturing is in decline.
Canadian base metals stocks fell 8 per cent on Thursday to their lowest level in 14 months. Teck Resources Ltd. , the No. 1 name, was down 7 per cent and smaller producers such as Grande Cache Coal plummeted 17 per cent. BHP Billiton , the world's largest miner, fell 7 per cent.
The rush away from commodities and miners is compounded by fresh memories of the 2008-09 crash, when the sector lost three-quarters of its value. However, fuelled by enduring economic strength in China, mining recovered extremely fast and the sector's equities jumped eightfold to record highs.
The worry now is whether miners – and other companies such as oil producers – are at the precipice of a classic cyclical decline in commodities prices, rather than one driven by financial crisis.
"We see most commodities going lower," said economist David Madani of Capital Economics.
Even gold was battered on Thursday, as investors rushed to the relative safety of the U.S. dollar.
As investors dumped stocks of mining companies, those in the industry remain bullish. Vancouver-based Copper Mountain Mining Corp. opened a copper mine in June in the southern British Columbia Interior to capitalize on high copper prices. The entire output is going to partner Mitsubishi Materials in Japan.
Copper fell sharply again on Thursday to $3.44 a pound, down 8 per cent from $3.74 on Wednesday and well off record-high territory of more than $4 in August. Copper Mountain chief executive officer Jim O'Rourke said his company would still make money with the commodity at $2.50 a pound.
"We're obviously going to survive but it's not as nice as we'd like it to be," said Mr. O'Rourke, a 47-year mining industry veteran who does not fear a cyclical demand crash.
"If it wasn't for the situation in Europe, and the situation in the U.S., I think you'd probably see the price of copper going up," he said, pointing to a relatively tight supply.
Companies remain confident. A string of expansion news came out last week, and on Thursday Teck Resources said it is spending $475-million to modernize its four-decade-old mill at Highland Valley, the largest copper mine in Canada, so it can handle expected production through 2025. The work is to be complete in 2013, and would increase production and recover more copper from the ground.
Teck's board approved the spending on Wednesday, unperturbed by the markets' slide, betting on long-term copper demand and prices.
Teck says it is in the best financial shape it's ever been – a major contrast to the heavy debt it carried into the financial crisis of 2008.
"We still see strong demand for our products, particular our steel-making coal and our copper," Teck spokeswoman Marcia Smith said.
Some analysts are also confident in the long-term prospects for commodities. Goldman Sachs reiterated its bullish position on Thursday and analyst John Hughes of Desjardins Securities said he feels China will continue to underpin industrial demand and support commodities.
"They're not going to change their five-year plan based on the vagaries of the commodities market," Mr. O'Rourke said. "I think a year from today it'll be a much better world. The market is looking much shorter term, even the next week at best."