Slowing growth and credit concerns in China have taken an enormous toll on base metal prices. The related mining stocks have been hammered as well in recent weeks, and according to analysts at Dundee Capital Markets, there could be worse to come.
“The bottom line is that with stimulus being tapered, China’s slowing fundamentals will likely reassert themselves and we believe miners will be forced to curtail production, even in the copper market,” they wrote in a note.
“At that point, we will have finally squeezed all of the excesses of the last cycle out of the industry. Unfortunately, the dramatic lowering of commodity price expectations could be painful.”
They stated that a further 15% drop in prices would cause “significant” distress for mining companies, especially those that carry higher risk. Potential losers in that scenario include Copper Mountain Mining Corp., Mercator Minerals Ltd., Thompson Creek Metals Company Inc., and Candente Copper Corp., they noted.
The analysts downgraded a whopping 17 mining stocks as they lowered commodity price expectations and adopted a more conservative approach to the sector. They only upgraded one: Teck Resources Ltd., which was raised to buy from neutral. They cited its strong balance sheet as proof that it can weather the storm in the sector.