Another week, another 5% knocked off the share prices of FTSE 100-listed mining giants BHP Billiton (LSE: BLT) and Rio Tinto (LSE: RIO). The stocks are now down 40% and 30% respectively over the past 12 months as sentiment swings conclusivelyagainst the mining sector, strickenby Chinas intensifying crisis.
The consensus is that the much-heralded commodity supercycle is now puncturedand was probably a mythanyway. With signs that the global economy is slowing, even outside Asia, the downside will continue. That is something almost everybody agrees on today.
Land Of Opportunity
When everybody agrees on something, investors should sit up and take notice. Often, everybody is right (the wisdom of crowds and all that) but sometimes it heralds great opportunities.
Now Rio Tinto has given contrarians something tasty to chew on, producingrigorous analysis suggesting that demand for iron ore and steel will continue to grow despite the slowdown in China.It predicts that global demand for steel will rise by 2.5% a year for the next 15 years, and Chinese crude steel production will hit around 1 billion tonnes by 2030. Iwas surprised by the bullish forecast, and so were markets, as thestudy prompted a 4%rally in both stocks.
It is a momentaryflash of light amid the gloom formining stocks. And it contrasts vividly with more bearish forecasts from BHP Billiton, which recently downgraded its estimates for peak Chinese steel production from between 1-1.1bn tonnes to between 935m and 985m. In todays mining sector, good news doesnt hang around for long.
Emerging Demand
In a rare burstof optimism, BHP Billiton said it did seegreater prospects in emerging markets beyond China,where it expectssteel demandto rise by 65% by 2030.
At todays share prices, it wont take much good news forBHP Billiton and Rio Tinto to shine again. That could come in the shape of furtherChinese stimulus, as desperate policymakers attempt to blastthe countrys hard landing back into orbit. On Friday,Peoples Bank of China governor Zhou Xiaochuan has suggested the Chinese stock market slide is nowstarting tostabilise, which would help.
Even if China is growing at just 4% a year, instead of 7%, that is from a much higher base than before. As Capital Economics has pointed out, the country will add another $700bn to GDP this year, more than the Chinese mainlands entire economy in 1994 (and bigger than Switzerlands GDP today).
Juicy Income
Just as commodity pricesovershot on the way up, they may well haveovershot on the way down. If you are working upthe courage to buy into current stock market falls, BHP Billiton and Rio Tinto may be the ideal place to start.
You can hook yourself amazing yieldsof 7.75% and 6% respectively (although continued low commodity prices wouldeventually imperil those). BHP Billiton and Rio Tinto wont fallforever. Afew more flashes of good news and they could quickly start to recover lost ground.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.