Hedge funds raise bets against mining services stocks

Australian hedge funds are raising their bets that profit-strapped mining services companies will come under selling pressure in coming months, says the Australian Financial Review.

Among the most shorted mining-related stocks on the Australian market are Ausenco, junior miner Atlas Iron, Arrium Mining and junior gold producer Kingsgate Consolidated, according to Australian Securities Exchange data.

One hedge fund manager, who asked not to be named, said his company had been shorting a number of stocks in the mining services sector on the expectation that “industry conditions will continue to deteriorate and that the success of this strategy will be felt in the coming 12-18 months”

Another hedge fund boss was not surprised some managers were having a “crack” at shorting the sector, given concerns about revenue.

Atlas shrugs off crash in price of iron

Atlas Iron chief executive Ken Brinsden is playing down the latest slump in the price of ore, saying volatility is to be expected and tipping an average price of $US110-130 a tonne in the short term, according to the Australian Financial Review.

The iron ore spot price has fallen to near two-year lows, hovering at $US105 a tonne, after nudging $120 last month. Spot prices fell 2.7% in China on Wednesday night, leaving prices 21.5% lower than at the start of the year.

The main contributor is an easing of steel production growth in China, the world’s largest buyer of iron ore.

But Brinsden says volatility is to be expected and the price is underpinned by healthy fundamentals.

“There is constant and growing demand for steel production in China and that will lead to continued demand for seaborne trade,” he said.

China slashes spending on new fossil-fuel power plants

China added nearly 40% less coal and gas-fired power capacity in the first quarter than it did a year ago - mainly due to stronger pollution controls and slower economic growth - a senior government adviser told the Sydney Morning Herald this week.

China, the biggest global emitter of gases that cause climate change and plagued by air quality that causes half a million deaths a year, consumes nearly half the world’s coal.

But recent data released by the National Energy Administration showed that China fell 38.9% in the first quarter compared to the same period last year, a sign that the share of fossil fuels in the energy mix were slowly coming down.