The Lemon Fool

Can anyone explain why this kind of thing happens?

London stocks underperformed rival European benchmarks on Wednesday, dragged down by losses for heavily weighted mining shares, after China reported a sharp rise in factory-gate prices.

Copper prices HG00, -1.06% for July fell 5 cents to $4.50 a pound. And mining stocks also fell, with shares of Rio Tinto RIO, -1.68% RIO, -1.95%, BHP Group BHP, -2.27% BHP, -1.72%, and Anglo American AAL, -2.61% all down 2%.

“Miners are trading under pressure, tracing base metal prices lower. Any tightening of policy in China could dampen demand for these commodities,” said Griffiths.

From https://www.marketwatch.com/story/chine ... 1623245294

I'm puzzled. The best explanation I think of is that, if it's now going to cost Chinese firms more for goods, then they will attempt to pay less for anything they can, including base metals, which pressurising metal suppliers, hence miners, hence mining forecast earnings. Is that any good as an explanation?

More on the Chinese Inflation story:

https://www.scmp.com/economy/china-econ ... -year-high

Matt

From the information you supplied, it would seem that the sharp rise in factory gate prices,( i.e. rising in prices for manufactured goods) is believed likely to cut demand for the goods and thence to cause the manufacturer to reduce orders for raw materials, thereby reducing demand for mined products and causing the miners to cut prices to restore sales.

Regards,

TheMotorcycleBoy wrote:Can anyone explain why this kind of thing happens?

London stocks underperformed rival European benchmarks on Wednesday, dragged down by losses for heavily weighted mining shares, after China reported a sharp rise in factory-gate prices.

Copper prices HG00, -1.06% for July fell 5 cents to $4.50 a pound. And mining stocks also fell, with shares of Rio Tinto RIO, -1.68% RIO, -1.95%, BHP Group BHP, -2.27% BHP, -1.72%, and Anglo American AAL, -2.61% all down 2%.

“Miners are trading under pressure, tracing base metal prices lower. Any tightening of policy in China could dampen demand for these commodities,” said Griffiths.

From https://www.marketwatch.com/story/chine ... 1623245294

I'm puzzled.

The simplest explanation and the classic one that is always rolled out is that rising prices imply tighter future monetary policy and therefore higher discount rates, which reduces the present value of stocks.

GS

GoSeigen wrote:

TheMotorcycleBoy wrote:Can anyone explain why this kind of thing happens?

London stocks underperformed rival European benchmarks on Wednesday, dragged down by losses for heavily weighted mining shares, after China reported a sharp rise in factory-gate prices.

Copper prices HG00, -1.06% for July fell 5 cents to $4.50 a pound. And mining stocks also fell, with shares of Rio Tinto RIO, -1.68% RIO, -1.95%, BHP Group BHP, -2.27% BHP, -1.72%, and Anglo American AAL, -2.61% all down 2%.

“Miners are trading under pressure, tracing base metal prices lower. Any tightening of policy in China could dampen demand for these commodities,” said Griffiths.

From https://www.marketwatch.com/story/chine ... 1623245294

I'm puzzled.

The simplest explanation and the classic one that is always rolled out is that rising prices imply tighter future monetary policy and therefore higher discount rates, which reduces the present value of stocks.

GS

Sure but it was miners who were reported as taking the hit. So I guess it's possibility that base metals demand will fall that seems most plausible, as per Ody's suggestion.

That's not to say that I'm "discounting" your explanation in the least, however

Matt