Shares of mining heavyweights BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have been smacked today after a horrendous night for commodity markets.
Early in today's session, Rio Tinto's shares have retreated 4.2% to $44.79, while BHP's shares have dropped 5% to just $17.50, down from more than $21 a share less than three weeks ago. This was largely expected, considering the London-listed shares of both businesses were hit hard overnight.
Notably, Fortescue Metals Group Limited (ASX: FMG), which is the country's third-biggest iron ore miner, has also dropped 6.1% with its shares now trading almost 22% below their recent high.
The heavy falls came after iron ore and oil prices both fell heavily overnight. Indeed, both resources have enjoyed strong rebounds in the last few months, but many questions have been raised about the sustainability of those rallies.
Iron ore, for instance, peaked above US$70 a tonne in April after slipping below US$40 a tonne in December. While the price rises played a key role in pushing the shares of the iron ore miners higher, the commodity is now stuck in a downwards trend. It fell another 5.7% overnight and is now fetching US$54.99 a tonne, according to The Metal Bulletin.
The problem facing investors is that the iron ore price is expected to hit even more headwinds in the second-half of the year. According to Mining.com, Goldman Sachs has given the resource a US$40 a tonne price target in the fourth-quarter, suggesting there is plenty more downside risk for investors exposed to the sector.
What is perhaps an even worse sign for those investors is that BHP's and Rio Tinto's own executives have also expressed their doubts regarding the price sustainability.
In addition to the overnight fall in the iron ore price, oil prices also dropped around 4%. As reported by CNBC, this was largely due to a reassessment of the impact of wildfires on Canada's oil output, combined with another reported inventory build-up at the US hub for crude futures.
Shares of Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) are down 3.2% each, while Senex Energy Ltd (ASX: SXY) has also dropped 5.4%.
Indeed, while investors may have been tempted to buy into the resources sector when prices were rising, this should come as a clear warning. The miners themselves are price-takers, meaning they have no control over the prices themselves. If commodity prices do continue to fall, which they seem likely to do, shares in the sector could continue to be hit hard as well.
