Konstantin Inozemtsev
Freeport-McMoRan Copper & Gold, Southern Copper and Teck Resources are the metals companies whose shares are likely to suffer the most from a slowdown in China's economy.
All three are significant copper producers, and China has been a large copper importer as its economy has grown at a torrid pace. Over the past two years, shares of Freeport-McMoRan, Southern Copper and Teck Resources have shown higher correlations than other metals stocks to the Shanghai Composite stock market index, a barometer of the Chinese economy. Southern Copper has had a 0.83 correlation, which means that when China's stocks move, shares of Southern Copper move in the same direction with 83 per cent regularity.
Freeport-McMoRan and Teck have correlations of 0.73 and 0.67, respectively. In comparison, SPDR S&P Metals & Mining ETF has a correlation of 0.51 with the Shanghai Composite index.
U.S. steel majors U.S. Steel , Nucor and AK Steel have lower correlations of 0.12, 0.42 and 0.29, respectively, as China is a net exporter of steel and does not depend on these companies to feed its manufacturing juggernaut.
Recent data point to a slowdown in China's economy, which could pressure these stocks further. China's PMI index dropped to 52.1 in June from 53.9 in May.
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The next big day for Chinese economic data will be July 15, when Beijing plans to release GDP, CPI and industrial production numbers.
Second-quarter GDP likely grew 10.1 per cent, according to consensus estimates of analysts polled by Bloomberg. In the first quarter, GDP grew at a significantly faster 11.9 per cent, topping analyst estimates of 11.7 per cent.
Shares of Freeport-McMoRan, Southern Copper and Teck already have been under pressure due to China's shrinking copper imports, which account for 27 per cent of global copper demand. Copper imports in May declined 9 per cent month over month and 6 per cent year over year to 396,712 tons.
Although this decline indicates a slowing economy, other measures of the Chinese economy -- such as real estate prices -- have continued to grow, which could force Chinese officials to tighten monetary policy, further reducing copper demand.