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Why Metals and Mining Stocks Have Been a Falling Knife


Dec. 27 2018, Published 1:58 p.m. ET

Metals and mining stocks

Stock markets have seen a selling spree this month. The sell-off that began at the beginning of the fourth quarter intensified in December. From China’s soft economic data to the Federal Reserve’s hawkish stance, risks aplenty have troubled the markets. Meanwhile, as markets have come under pressure, metal and mining stocks have been among the worst performers.

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Price action

In the steel space (DIA), U.S. Steel Corporation (X) and AK Steel (AKS) have seen negative price action of 48% and 59% year-to-date, based on the December 24 closing prices. Cleveland-Cliffs (CLF) also pared most of its gains. Aluminum producers’ price action has been equally depressing. Alcoa (AA) and Century Aluminum have lost 51% and 65%, respectively.

To be sure, as concerns have emerged over global economic growth, it wouldn’t be prudent to expect wonders from metals and mining stocks. Mining is a cyclical industry, and mining stocks are high-beta. Plus, while growth fears have pretty much spanned the globe, China has looked especially vulnerable. The country’s growth slowdown has only been amplified by its trade spat with the United States. Given China’s dominant share in global metal demand, we’ve seen a sell-off in metal prices amid concerns over the Chinese economy.

President Trump granted trade protection to US steel and aluminum producers with the Section 232 tariffs. However, despite the trade protection, US steel and aluminum stocks have sagged this year. In this series, we’ll see what lies ahead for the metals and mining sector.

Let’s begin by analyzing how Trump has wreaked havoc on aluminum markets.


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