Mining stocks on track for third month of losses as China woes deepen

The decline comes as Country Garden, the largest property developer in China, missed its final deadline for an interest payment on a US dollar bond last week, putting the company on the cusp of default and steepening the nation’s property crisis.

ANZ analysts Daniel Hynes and Brian Martin said in a note to clients that the likely default by the Chinese property developer raised concerns weak demand in the housing market “remains a headwind for steel and iron ore”.

The broker said sentiment was briefly lifted by better than expected economic data last Wednesday, which showed China’s GDP grew 4.9 per cent year-on-year in the third quarter, above analysts’ expectations.

Long-term price ‘too low’

Terra Capital portfolio manager Matt Langsford said despite the latest losses in the materials sector, he thought the long-term forecasts for iron ore were “too low.”

“The iron ore price has been stronger than pretty much any analysts had forecast, admittedly including us,” Mr Langford said. “I still think most analysts have their own long-term iron ore forecast prices too low,” he said.

Mr Langsford said Australia’s largest trading partner was yet to announce any “hard-coded” stimulus.

“That’s what the market is looking for in China, and then probably a rolling over of the USD” for the iron ore price to improve.

“We’ve had these small increments of stimulus from China, but it just hasn’t been enough,” he said. “There’s been a lot of verbiage, but in terms of large commitments, there’s been relatively few.”

Rather than feeling bearish about the outlook for iron ore based on losses over the past quarter, the natural resources fund portfolio manager viewed this period as a “buying opportunity” while the stocks were “relatively depressed”.

Mr Langsford pointed to losses in the ASX 200, which has also been in the red for the past three months. “Resources stocks get caught up in equity sell-offs as well,” he said.