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Thursday 16 October - afternoon update
Some spectacular falls saw the mining sector lose about 20% of its value yesterday and, according to Goldman Sachs, further steep falls can be expected in the days ahead.
Financial markets are now braced for a deep global recession, and that has already hit demand for, and the price of, raw materials.
Prices have fallen sharply in recent weeks, and shares in the major mining houses have followed suit. It is unlikely the economic slowdown in the West will be offset by the continued growth of their biggest customer, China.
Goldman has begun cutting its metals price forecasts. Worried that Chinese demand alone will be unable to keep metals markets underpinned, it has also revised its bulk forecasts, and expects April 2009 contract prices for iron ore to drop by 20% while coking coal contracts should settle at $210 a tonne.
Goldman warns that cheaper metals prices could be here until 2011 at the earliest. It has downgraded Anglo American, off 52p at 1274p, from buy to neutral and slashed its target from 3284p to 1765p. Lonmin, down 102p at 1297p, is cut from neutral to sell, with its target down from 2034p to 1253p.
Only yesterday, shares of Rio Tinto slumped 469p after the company suggested the Chinese economy was "pausing for breath". Dealers accept that even the Chinese economy will not be insulated from the mother of all recessions. Rio shares today shed a further 134p to 2223p, stretching its two-day deficit to 354p, or almost 11% of its stock market value.
Evolution Securities says future earnings will be downgraded because a further softening of metal prices is expected. Rio now plans to run down its own inventories by the year-end to improve its balance sheet.
Other losers today, included Kazakhmys, down 23¾p at 313p, Vedanta Resources, losing 47½p at 698½p, and Xstrata, off 65p at 993½p.
Elsewhere in the equity market, there was no respite for investors as they continued to be haunted by the prospect of a full-blown global recession.
Further sell-offs in New York overnight and in the Far East this morning saw the FTSE 100 index slumping to 3840.5 its lowest since April 2003.
However, it reduced the deficit to 140.4 points, or 3.4%, at 3939.13 on hopes of a rally on Wall street this afternoon. Even so, that stretched its two-day loss to 444.2 points, or almost 10%.
Traders say investors used the rally at the start of the week to unload stock. They add that there is now pressure on hedge funds to meet increased margin calls. There is also evidence that some traders are reluctant to take on new business because liquidity is tight.
A profit warning left Travis Perkins down 183p at 298p, making it the worst performer among second-liners. The building products supplier described trading conditions as worse than expected. Brokers say it is unlikely the company will pay a dividend. That left rival Wolseley 47p lower at 299p.
JJB Sports firmed ½p to 29¾p despite Dresdner Klienwort cutting its price target to 20p. Citigroup says bargain-hunters should give JJB a wide berth despite the collapse in the share price from 173p this year already. The shares have taken a battering in recent weeks following publication of a going-concern disclosure in the audit report.
Dresdner expects the sports goods retailer to continue to knock up losses while the dividend has been axed. It continues to rate the shares a sell, and has slashed its target from 75p to 20p.
Banks rescued by the Government this week continued to post small improvements. Lloyds TSB, which is being forced to pay £6.2 billion for rival HBOS, firmed 6.8p to 157p and Royal Bank of Scotland rose 1.2p to 66.2p. HBOS dipped 2.7p to 83p, and has now joined the 90% Club, which consists of companies whose shares are worth just 10% of their peak value in the past three years.
