Why are ASX 200 mining shares tumbling on Friday?

Let’s find out.

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Key points

  • ASX 200 mining shares are one of the worst performers on the market today 
  • Weaker commodity prices, the threat of higher energy prices crimping on margins and a dire warning for aluminium are casting a shadow over the sector 
  • But given the high inflation outlook, ASX mining shares may not underperform for long 

The volatility facing ASX 200 mining shares is a reminder that there will be no easy profits to be had in the coming months.

The sector crashed nearly 2% today and is one of the worst performers on the S&P/ASX 200 Index (ASX: XJO).

All sectors are in the red during lunchtime trade. The only other sector that’s faring worse than mining is the S&P/ASX 200 Real Estate Index (ASX: XRE), which is down 2.5%.

ASX 200 mining shares in a hole

The way things are going, the ASX 200 index could finish the week nursing a loss of around 4%.

Friday’s big falls in ASX resources shares comes even as commodities are seen to be well placed to benefit from the rising risk of stagflation.

Not that you can tell with the way ASX 200 mining shares are trading today. The Fortescue Metals Group Limited (ASX: FMG) share price has crashed 2% to $21.13, the South32 Ltd (ASX: S32) share price has tumbled 3.6% to $4.83 and the Alumina Limited (ASX: AWC) share price has tanked 5.5% to $1.56 at the time of writing.

Why are ASX 200 mining shares underperforming?

A drop in hard commodity prices is dragging on ASX 200 mining shares. Iron ore shed 1.4% overnight, copper slipped 1.4%, while aluminium gave up 1.2%.

There are also worries that high fuel and power prices will crimp profit margins for miners. This is because processing plants are energy intensive, while heavy machinery used onsite requires diesel.

What is also hurting sentiment are predictions that aluminium prices have peaked. Research firm Harbor Intelligence has warned that the price will plunge by nearly 20% by December to US$2,310 a tonne, reported Bloomberg.

Gloomy prediction for aluminium

The dire forecast was presented at North America’s largest aluminium conference this week. The drop is caused by slowing demand and rising supply.

Harbor Intelligence managing director Jorge Vazquez said at the conference:

We all know that last year and so far this year has been the best ever in terms of demand.

But there’s one component of that demand borrowed from the future, and we’ll need to pay that – consumers cannot sustain this level of goods spending seen the past two years.

Is it time to sell out of the sector?

Meanwhile, the price of other commodities is also tipped to decline in the near- to medium-term. This includes lithium and iron ore.

This doesn’t necessarily mean ASX 200 mining shares are about to collapse into bear territory. The fact is many do not need record high prices for their commodities to generate good profits.

Further, the price for many commodities isn’t likely to crash given the high inflation forecasts by most economists.

Motley Fool contributor Brendon Lau has positions in Fortescue Metals Group Limited and South32 Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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