Mining stocks slide 10% as tech volatility and dollar strength collide

BHP Group shares fell more than 10 percent from a record close on June 17 as jitters over AI spending and a rising dollar hit the world's biggest miner by market value.

"This shift changes the nature of BHP's earnings base from something tied closely to Chinese property and infrastructure cycles to a long-duration demand story around electrification, AI and grid buildout," Justin Lin, an investment strategist at Global X ETFs, said.

Copper now accounts for more than half of BHP's underlying earnings for the first time, as the company and rivals including Rio Tinto have made the metal the centerpiece of their growth plans. The US dollar climbed to its highest in more than a year against a basket of currencies after Federal Reserve Chair Kevin Warsh struck a hawkish tone at his first rate-setting meeting, fueling expectations of interest rate increases within months.

The stronger greenback has spooked investors who bet on mining as part of the so-called debasement trade, Morgan Stanley said in a note. "Feedback from clients remains that the hawkish surprise from Fed was not on the markets' bingo card and until it stabilizes, miners could remain in the penalty box," the bank said.

BHP shares steadied Friday in Sydney but ended the week more than 10 percent below the record close set on June 17. Rio Tinto also retreated from recent highs, while in London, Glencore and Anglo American remain sharply higher year to date despite the pullback.

The selloff reflects how mining stocks have become increasingly tied to the performance of AI hyperscalers spending hundreds of billions of dollars annually on data centers that require large amounts of copper. Tech stocks fell sharply last week on mounting fears about the massive borrowing and spending required for the data-center buildout, dragging miners lower alongside them.

Dollar Strength Pressures Commodities

An appreciating greenback is widely viewed as a headwind for dollar-denominated commodities, making them more expensive for buyers using other currencies. The Australian dollar dipped to US68.94¢, extending its monthly losses to about 4 percent. Copper prices declined on the London Metal Exchange as the Fed's hawkish stance and a strong dollar weighed on metals markets.

Brent crude steadied at $71.90 a barrel after an early bounce in Asian trade faded, while gold slipped to near seven-month lows as the dollar strengthened.

Analysts See Buying Opportunity

Despite the pullback, the fundamental thesis for mining stocks remains intact. "If you look at the way these stocks have performed, every dip is bought," said Darko Kuzmanovic, a senior portfolio manager on the global natural resources team at Janus Henderson Investors.

In addition to AI-driven copper demand, electrification, decarbonization and deglobalization are all positive tailwinds for the mining sector, according to Kuzmanovic. BHP shares had repeatedly set new all-time highs this year before the recent pullback, and Rio Tinto's Sydney-listed shares followed a similar trajectory.

The S&P/ASX 200 closed 0.7 percent higher Monday at 8,823.40, with the tech sector rebounding nearly 4 percent as investors returned to risk assets. But the mining-heavy materials sector faces continued uncertainty as markets weigh the path of US interest rates and the sustainability of AI-related spending.

This article is for informational purposes only and does not constitute investment advice.