Global miner stocks and sector-related exchange traded funds have suffered a huge blow and could continue to struggle on a weak commodities outlook.
The SPDR Metals & Mining ETF (NYSEArca: XME) has declined 14.9% year-to-date and plunged 34.2% over the past year. Meanwhile, the iShares MSCI Global Metals & Mining Producers ETF (NYSEArca: PICK) dipped 2.8% so far this year and fell 20.6% over the past year.
The world’s largest miners have lost $156 billion in market value last year and may experience a hard uphill battle ahead as a downturn in resource prices and lower demand out of China keep pressure on commodities, reports Nyshka Chandran for CNBC.
“Miners will need to need to stay on the defensive and in lean, fighting form, as they bob and weave through a number of ongoing challenges ranging from slumping commodity prices and volatile markets, to growing pressures from government and shareholders,” according to PwC.
The top 40 miners’ market capitalization have dropped to $791 billion as of the end of 2014, or 16% below 2013 levels and half the value from four years ago. The falling off in the miners space follows the severe drop in resource prices, with iron ore down 30% and Brent crude 44% lower.
Iron ore majros like BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RIO) and Value (NYSE: VAL) have created a glut in supply.
PICK includes a hefty 10.3% tilt toward BHP, 8.2% in RIO and 2.7% in Vale.
Moreover, expectations that the Chinese economy is slowing would add further pressure on the mining industry. The Chinese government has cut its national economic growth target to 7% for the year from 7.5% for 2014. China, which makes up 40% to 50% of global commodity demand, is shifting its economy toward a consumer-driven model, a major problem for suppliers of iron ore and metallurgical coal used in steelmaking for infrastructure projects.
Miners may also have to rethink their dividend policies as revenue streams dry up in light of falling commodities prices. The top 40 miners’ dividend coverage, or earnings per share divided by dividends per share, was just 1.1 times, which was worst than in 2013 when miners had to borrow to pay investors, according to PwC. The added weakness in the space could cause companies to cut back on dividends, dealing another blow to more long-term investors. [Global Miner ETFs: Falling Commodities Prices Weigh on Dividend Policies]
iShares MSCI Global Metals & Mining Producers ETF
For more information on the miners sector, visit our metals & mining category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.