Sector movers: Mining, metals stocks drag London market lower

Mining and metals took a hammering as the London market ended lower, with the escalating VW auto emission standards scandal seen impacting platinum group metals.

The FTSE 100 fell 2.83% or 172.87 points to 5935.84, while the FTSE 250 was down 2.15% or 363.33 points at 16,529.98 as natural resources stocks bore the brunt of negative sentiment. Spot platinum was down 3.20% or $31.10 to $939.65 an ounce at 1621 BST, as an emission standards scandal at carmaker VW threatens to engulf the European automobile industry.

Even though the market is spooked, impact of the scandal on platinum group metals (PGMs), which are an integral part of vehicle emissions systems, is not yet clear. Analysts at Macquarie said there are two technologies used to control diesel NOx emissions in addition to the standard platinum-based catalysts.

“The older VWs used a platinum-based Lean NOx Trap (LNT), the newer ones used the non-PGM urea-based SCR system – but both appear to be implicated in the allegations. While in the short run there might be a case that more platinum (or rhodium) is needed to help meet the emissions standards, a more compelling longer-term concern is that if VW did this because otherwise the diesel cars would not meet customers’ expectations for performance or cost, then diesel might have a worse future than forecast.

“Although the US is a small diesel market (2–3% of all sales), Europe is a very large one (~50%), and the new EU6 emissions standard, which came into force on 1 September 2015, will bring NOx limits closer to the strict US ones, and “real-world” testing, due 2017, will make them harder to meet,” the analysts explained.

Base metal futures also fell further on the London Metal Exchange extending Monday’s declines. Past 1635 BST, LME’s three-month delivery contracts of primary aluminium (down 1.8%) copper (down 3.9%), lead (down 0.7%), nickel (down 2.0%), tin (down 2.3%) and zinc (down 1.9%) were in all negative territory. Oil traded lower again, with the Brent front month futures contract for October delivery down 2.06% or $1.01 at $47.91 per barrel.

Invariably, Glencore (down 10.63%), Antofagasta (down 7.25%) and Anglo American (down 6.73%) ended the session among the biggest blue chip fallers. The midcaps conveyed a similar picture, with Kaz Minerals (down 25.27%), Premier Oil (down 11.17%) and Petra Diamonds (down 10.04%) were among the biggest FTSE 250 fallers.

Meanwhile, Credit Suisse added that iron ore was set to do worse from current levels while copper prices were seen “hovering” around the top-end of the cost curve (220 US cents) until a deficit reappeared in the market, towards 2018. The price of copper was now seen averaging $5,673 per tonne in 2015, compared to a previous estimate of $6,126 per tonne.

On the positive side, RSA Insurance Group rebounded from the previous session’s fall after confirming Scott Egan will begin as chief financial officer next month, and amid news that Zurich Insurance has ended offer talks with the London-listed insurer. By the end of the session, RSA was the only FTSE 100 stock to close in positive territory, up 0.72% or 2.9p at 406.20p.

IG Group was the standout gainer on the FTSE 250 after the trading firm posted an increase in revenue in the first three months of the year, although it warned market volatility had made it harder to predict an outcome for the full year.

In the quarter to the end of August, revenue rose 24% year-on-year to £106m, driven higher by growth in all regions, although an increase in numbers in Europe was partially offset by a decline in average revenue per user.