Resources stocks crash: why the worst might be yet to come

BHP Billiton Limited (ASX:BHP) has hit a new seven-year low while Newcrest Mining Limited (ASX:NCM) shares have also been hammered.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The iron ore price is now sitting dangerously close to setting a new low after falling more than 4.5% overnight to US$45.58 a tonne, according to data from the Metal Bulletin.

It's the lowest price since early July, while it is just 2.2% away from breaching its low of US$44.59 dating back to 2009.

Indeed, iron ore prices are under enormous pressure due to oversupply within the market. The world's biggest producers, including Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and Brazil's Vale, have all ramped up their supply levels at a time where demand growth from China is actually falling.

With production from Gina Rinehart's Roy Hill project to come online in the near future, prices will likely fall even further. In fact, some experts are even suggesting the commodity could fall below the US$40 a tonne mark before the end of the year despite trading near US$60 a tonne as recently as September.

Even BHP's own vice president of iron ore marketing, Alan Chirgwin, believes prices will decline for years to come, according to The Australian Financial Review, highlighting the severity of the headwinds facing the industry.

Rio Tinto, BHP Billiton and Fortescue Metals Group have all been hit hard today as a result of the fall, shedding 2.2%, 2.6% and 2.9% respectively. However, they're not the only ones feeling the pain with various other commodities, including copper, also crumbling in price overnight.

The Brent oil price fell 1.9%, dragging Woodside Petroleum Limited (ASX: WPL) and Origin Energy Ltd (ASX: ORG) 1.1% lower each, while a 1% fall in the price of gold saw the miners plummet.

Newcrest Mining Limited (ASX: NCM), the country's biggest gold producer, fell 4.2%, while Northern Star Resources Ltd (ASX: NST), EVOLUTION FPO (ASX: EVN) and Silver Lake Resources Limited. (ASX: SLR) fell between 5.1% and 9.8% each.

Although many stocks across the resources sector are hovering at or near 52-week lows, there's nothing stopping them from falling even further. If commodity prices do continue to crash, earnings growth will become increasingly difficult to achieve making it a very risky sector to be exposed to right now.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »