Resources slaughterhouse! Top stocks lose $1.7 trillion in ten weeks

Domino effect: dollar rises as inflation fears recede on plunging commodities; world's top 40 mining and oil stocks have lost US$1.7 trillion of market value in ten weeks.

Author: Barry Sergeant
Posted: Friday , 08 Aug 2008

JOHANNESBURG -

Seen alone, Friday was akin to a game of dominoes: (one) a rampant dollar, (two) rising on plunging energy prices as (three) inflation fears receded further, so (four) lessening the chances of policy interest rate hikes.

Dollar commodity prices inevitably move inversely to the dollar, and commodity prices, thus, (five) moved yet further down. The dollar (six) took the least line of resistance and moved yet further up.

Amid this apparent self fulfilling prophesy, investors regard the global listed resources stock universe as a slaughterhouse: commodities have gone "ex growth" and resources stocks of all kinds face margin compression. The broader backdrop has been well flagged by now: a living canvas with increasing resolution, showing up a cooling global economy, and, more recently, even a cooling in China, the epicenter of global economic growth, and the single biggest consumer of many kinds of raw materials.

The evidence - to date - shows that energy prices reached choke points in mid-July; since then, benchmark crude oil prices have retrenched by around 22%; natural gas has fallen 40%; heating oil by 25%, and benchmark Appalachian coal futures by 22%. Prices for practically every other commodity have fallen, be it cobalt, frozen shrimps, gold, pork bellies, tapioca, or tin.

The world's top 20 oil stocks have lost USD 967bn in market value in just a matter of months; the top 20 global mining stocks have surrendered USD 690bn, for a combined loss of USD 1.7 trillion. The losses have been aggravated by extraordinarily heavy falls in the prices of Asian stocks of all classes, particularly those listed in China. The Shanghai Composite Index has retreated by 58% from its frothy highs.