Share prices sinking for resources majors as economic worries bite

Our big five resources stocks – BHP, Fortescue, Rio Tinto, Woodside and Santos – have disappointed investors recently, and now face fresh challenges.

Outshone by technology companies and unloved by investors, Australia’s biggest resources stocks have had a tough 18 months on the market.

While the S&P ASX/200 index has climbed 10 per cent since the start of last year, our biggest mining and petroleum companies’ share prices have fallen between 14 and 47 per cent.

In that period, US tech companies – measured by the Nasdaq index – have climbed 26 per cent while the US S&P500 index is up 22 per cent, led by Microsoft, NVIDIA, Apple, Amazon and Alphabet (Google).

Analysts say resources stocks have been hit by weaker commodity prices, particularly iron ore, worries about global economic growth, and more recently fears of a US-China trade war sparked by US President Donald Trump’s policies.

Grady Wulff from Bell Direct says forecasting growth is difficult. Picture: Supplied

Bell Direct market analyst Grady Wulff said miners were ­battling depleted demand, especially from China, and rising production costs hitting their profit margins.

“Until we see material economic recovery out of China, the share prices of our big blue-chip miners are likely to continue under­performing the broader market index,” Ms Wulff said.

“With the ever-changing policies out of Trump to date and uncertainty around China’s demand and economic recovery, it is very difficult to forecast growth in the current market environment.

“Mixed economic data painting a murky picture about the recovery of China’s economy post-pandemic, and Trump’s changing policies and outlook daily, paint the perfect uncertainty storm.”

This has prompted companies to invest beyond their traditional commodities, including Fortescue’s focus on green hydrogen and green iron, and Rio Tinto’s lithium moves.

Moomoo Australia market strategist Michael McCarthy said investors chasing tech stocks had affected resources shares as there was pressure put on commodity prices.

Worries about looming changes to the Chinese steel industry also were impacting sentiment, he said. “They have flagged changes, but we don’t know what they will be yet. China produces 90 per cent of its own iron ore internally, yet that remaining 10 per cent makes it the largest international buyer for iron ore overall.”

Mr McCarthy said the key question for investors was the global growth outlook. “I’m a little bearish and concerned about the outlook, particularly with inflation breaking out,” he said.

Management shake-ups are under way at some big miners, adding to uncertainty. Last week Rio Tinto surprised the market with news that it would replace chief executive Jakob Stausholm before the end of the year, while two top Fortescue executives are leaving the company.

Goldman Sachs has a 12-month price target on Fortescue shares of $15.60, close to its closing price on Friday of $15.51, while Macquarie Research has a $15 12-month target for the company. Morgan Stanley’s target is higher, at $16.50.

Citi noted last week that Rio Tinto was making a bigger investment in lithium with two joint venture deals, and gives it a $130 target price on the stock – a premium to Friday’s close of $117.

On the energy front, Woodside and Santos have felt a 22 per cent slide in crude oil prices since January 2024, and Santos’s share price weakness has seen it replaced by goldminer Northern Star Resources among Australia’s five biggest resources stocks by market cap.

Catapult Wealth managing director Tony Catt said the lower oil price – recently falling below $US60 a barrel – was impacting petroleum company shares, as was the “fairly weak” outlook for global growth. “Chinese growth has been weak in Chinese terms – that’s causing the resources companies some grief,” he said.

Mr Catt said while the tide was turning globally, it was difficult to predict when things might pick up.

Demand for copper is offsetting weak iron ore prices for BHP, analysts say. Picture: BHP

“We are finally getting to this rate-cutting cycle, which I think will start to get more aggressive and will stimulate economic growth,” he said. “And a lot of governments are committing to big infrastructure spending.”

One segment of the resources sector has been surging – gold stocks, thanks to investors flocking to safe-haven assets amid global uncertainty. Northern Star Resources has climbed 48 per cent since early 2024 and Evolution Mining has more than doubled.

Ms Wulff said goldminers could run further but investors would favour high-grade, low-cost producers. “We will likely see spot gold price moderation in the next year as certainty around global trade wars and inflation come to fruition,” she said.

Originally published as Share prices sinking for resources majors as economic worries bite