Teck Resources (TECK) is having a dismal 2017. Based on its July 7, 2017, closing price, the stock has fallen 11.8% this year, making it one of the worst-performing companies in the metals and mining space (EWC). Notably, the stock was among the biggest gainers last year with gains of 418%.
Teck Resources—like other miners Freeport-McMoRan (FCX), Glencore (GLNCY), and Rio Tinto (RIO)—is grappling with a slowdown in China’s appetite for metal. As China transitions from an investment-driven economy to a consumption-driven economy, its metal demand has slowed down.
If we look at Teck Resources’ business operations, we find that it mainly sells steelmaking coal, copper, and zinc. While Teck Resources isn’t a major supplier of copper, it’s the second-largest exporter of steelmaking coal in the seaborne market. Although we’ve seen momentary price spikes, steelmaking coal prices have been subdued over the last few years due to the slowdown in China’s steel industry. The country’s steel production has likely peaked, according to several analysts.
While China’s slowdown is old news, metal and mining companies have been looking up to India as the next big market. To be sure, India is the fastest-growing major economy. Moreover, the country’s per capita metal consumption is quite low, which is where miners see an opportunity. Notably, like China, India also lacks high-quality natural resources.
So, with China’s slowdown leaving a crater in global commodity demand, can India help miners like Teck Resources revive their fortunes? We’ll explore this question in the next parts of this series. We’ll also look at Teck Resources’ valuation multiples under the current market scenario.