Stocks fall on warning over Chinese iron ore demand

Stock markets retreated yesterday from a recent strong run on concern about the outlook for the Chinese economy after a warning on dropping iron ore demand, and in response to new US housing data.

London’s benchmark FTSE 100 index dropped 1.17 per cent to 5,891.41 points, while in Paris the CAC 40 fell 1.32 per cent to 3,530.83 points and in Frankfurt the DAX 30 lost 1.39 per cent to end at 7,054.94 points.

In foreign exchange deals, the euro slipped to $1.3228 from $1.3237 late in New York on Monday. “The effects of a China slowdown are all too apparent in European equity markets today,” said Brenda Kelly, an analyst at traders CMC Markets.

Global mining giant BHP Billiton yesterday said that China’s iron ore demand appeared to be flattening as the world’s second-largest economy slows, but added that prices were expected to hold up.

BHP iron ore president Ian Ashby said he was confident that China would meet its five-year economic growth targets but iron ore demand would soon hit “single digits if it’s not already there.”

Mining shares quickly took a hit.

“Comments from BHP Billiton that demand for iron ore is dwindling have caused the mining sector to retreat with Fresnillo, Antofagasta and Rio Tinto among the worst casualties, all trailing near the bottom of the UK index.”

China, the world’s largest consumer of raw materials, forecast last week that its economy would grow by 7.5 per cent this year, a marked slowdown compared with last year’s 9.2 per cent growth and expansion of 10.4 per cent in 2010.

In London trading yesterday, the mining sector was a sea of red with BHP Billiton’s share price sinking 4.05 per cent to 1,965 pence and Fresnillo diving 5.01 per cent to 1,687 pence.

Antofagasta lost 3.61 per cent to 1,201 pence and Rio Tinto dropped 4.15 per cent to 3,464.5 pence.

In Paris, shares in French steel titan Arcelor Mittal slumped 3.56 per cent to €15.59, while German industrial giant ThyssenKrupp retreated by 3.01 per cent to EastEnders actress Gemma McCluskie €20.13 in Frankfurt.

Asian markets also beat a hasty retreat yesterday as dealers shrugged off a positive lead from Wall Street.

Hong Kong closed down 1.08 per cent, Sydney shed 0.37 per cent, Seoul lost 0.24 per cent and Shanghai ended 1.38 per cent lower. Tokyo was shut for a public holiday in Japan.

US stocks were also sharply lower on Chinese growth concerns and after a mixed report on the troubled US housing construction sector.

The Dow Jones Industrial Average dropped 0.51 per cent to 13,171.78 points in midday trade.

The broad-market S&P 500 index lost 0.49 per cent to 1,402.80 points, while the tech-heavy Nasdaq Composite shed 0.64 per cent to 3,060.93 points.

“Concerns about economic growth in China are stymieing sentiment, causing the recent upward momentum for stocks to pause,” Charles Schwab analysts said.