Miners drop on Chinese growth fears - UPDATE

20th Mar 2012 09:22

The world's biggest mining company, BHP Billiton, has said that Chinese demand for iron ore is "flattening", prompting a sell-off in the resources sector on Tuesday.Ian Ashby, President of BHP's iron ore division, told reporters in Australia that "the (Chinese) economy is shifting, it's changing. Steel growth rates will flatten and they have flattened." Similarly, Rio Tinto's Managing Director of expansion projects David Joyce also said that the "rate of GDP growth in China is more immediately slowing". Nevertheless, he assured that the company remains confident of a soft landing for the economy. This is significant both for the iron ore miners like BHP and its great rival Rio Tinto who must decide whether to continue with expansion programmes at their mines; and for shareholders who will wonder whether mining stocks are really the place to be.Furthermore, falling house prices and rising fuel costs are also feared to be limiting economic expansion. Gross domestic product growth is expected to be 7.5% in 2012, the weakest growth in eight years.Both Rio and BHP have reiterated that they will continue with expansion programmes given the current price of iron ore has hovered between $130 and $147 per tonne since December. BHP thinks the "floor" for the price is $120 per tonne and, although China may not be growing quite as quickly as in recent years, there are still 100m Chinese expected to migrate from the countryside to cities. They need somewhere to live, and those flats and houses will need iron ore.BHP's shares were down 3.64% at 1,973.5p in afternoon trade in London, while Rio Tinto was down 4.01% at 3,469.5p. Sector peers Fresnillo and Vedanta Resources were also registering heavy losses.BS/BC