FTSE 350 Miners Are Down Substantially, Any Bright Spots?

Bets on a quick rebound in China haven't materialised, with miners trending lower. Can a rebound be expected, or is there further downside coming?

The Problem Starts in China

Miners have underperformed so far this year as global commodity prices remain under pressure from slack demand in China. Although there were some positive results in the first quarter, leading indicators of economic activity in China have turned less optimistic since. Manufacturing PMIs have turned negative, and the yuan continues to weaken, now above 7.0 vs the dollar, making it more challenging to pay for commodities.

Other industrial hubs are also facing challenges, with Germany confirmed to have slipped into a technical recession and most economists expecting the US to fall into recession later this year. Demand for raw materials is expected to remain under pressure in the current environment, weighing on global mining stocks.

Any Bright Spots?

Of the miners listed on the FTSE 350, Hochschild is the best performer this year and is the only one in the green. Its operations focus primarily on gold and silver. The other end of the spectrum is held by Petra Diamonds, which is down nearly a third since the start of the year. As its name suggests, diamonds are its primary production. While both gold and diamonds are seen as luxury goods, the disparity between the two companies illustrates how the current economic situation is weighing on the mining industry. Safe havens such as gold and silver that store value have been buoying stock prices, while discretionary luxury, such as diamonds, have been falling.

De Beers, owner of Anglo American, is the second-worst performer. On the one hand, this implies that once the uncertainty is over, these firms have a better chance of a rebound; however, how much longer the uncertainty will last is difficult to judge. The expected boom in copper prices due to vehicle electrification has not yet materialised either, with copper prices drifting lower since the peak at the start of the year. Almost pure-play copper firm Antofagasta has been facing lower demand and uncertain production due to Chile's political situation and droughts. A global economic downturn would presumably exacerbate political tensions in other large producing nations, such as Peru, where Glencore recently had to shut down its mine over protests.

Overall, pending a resolution of global economic worries, miners are likely to be under pressure in the short term - except for those focused on gold production, such as Hochschild and Centamin, as long as they can avoid political uncertainty in the countries they produce.

Centamin in Bearish Flag or Rising Wedge

Centamin is down 7.35% YTD but had risen more than 70% to 127p in early 2023 as it put a low in by the 7-year low registered last July at 74p. It has come down substantially since the peak but remains 40% up from that low and within triple-digit territories. Its price action resembles a bearish flag, with a fresh low under 95p offering a chance at further upside.

The price action from 95p to 115p is to be considered sideways, with either of the ends reachable in the short-to-medium term. If the low was marked at 95p, we might witness a rising wedge, leading to a breakout past the upper end and eying the January 23 high. Conversely, sliding below the lower end of the range will expose 81p and last July's low, increasing the chances of further breakdowns.

Key Takeaways

Miners listed on the FTSE 350 have underperformed due to slack demand in China and other industrial hubs facing challenges. The mining industry is likely to remain under pressure until a resolution of global economic worries. Hochschild is the best performer this year, as it focuses primarily on safe-haven gold and silver. Centamin has also performed reasonably well since last July’s low and is down YTD, but its price action resembles a bearish flag, with the short-to-medium term price action stuck between 95p and 115p.