How China Sunk Teck Resources Ltd. Shares by 7% In 1 Day

Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) sunk 7% because of some worrisome news from China. Is the stock now worth buying?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) shares have been in free-fall in recent years, and the news only got worse on Tuesday. The diversified miner’s stock price fell nearly 7%, closing the day at $9.40. Back in early 2011 the shares traded for more than $60.

So, why did Teck fall so far this time?

It’s all about China

Teck is the second-largest exporter of metallurgical coal, which is used to make steel. This makes Teck very reliant on the Chinese economy, perhaps more so than any other company listed on the S&P/TSX 60. The country accounts for nearly half the world’s steel production, and also nearly half of the world’s steel demand.

This has been bad news in recent years as China’s growth has slowed considerably. The country’s steel production has slowed even more, and may have already peaked. Consequently, metallurgical coal prices have plummeted from about US$300 per tonne in early 2011 to less than US$100 today.

The latest blow came on Tuesday, when China devalued its currency by 2%. The move makes imports such as metallurgical coal more expensive, which does not bode well for future demand.

It could get worse

According to China’s official figures, its economy grew at a 7% annual rate in the first half of this year, right in line with its annual target. So, why is the country devaluing its currency?

To put it simply, many experts simply don’t believe the Chinese authorities. After all, there’s no reason for such drastic measures if targets are already being met. As put by CIBC economist Avery Shenfeld, while speaking to The Globe and Mail, “They’re behaving nothing like a government that’s on target.”

The fact is, it’s very difficult to verify this 7% growth figure. But according to more transparent measures, such as exports and manufacturing activity, China’s growth is nowhere near 7%. And if China is being at all dishonest about its growth figure, then Teck could be in serious trouble when the dust settles.

Is Teck still worth buying?

Teck shares have fallen a long way and may look very cheap. But this is an extremely risky bet to make right now. Put simply, there are better options for your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Metals and Mining Stocks

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Tuesday, February 14

U.S. inflation data and more corporate earnings could keep TSX stocks highly volatile today.

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Are Hydrogen Stocks or Lithium Stocks Better for Long-Term Investors?

Hydrogen and lithium stocks are excellent options in for long-term plays but remain speculative investments, according to some market analysts.

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

3 Top Mining Stocks in Canada to Buy in February 2023

Three Canadian mining stocks are attractive prospects for growth investors in February 2023.

Read more »

Gold bars
Metals and Mining Stocks

Better Buy: Barrick Gold Stock or Kinross Gold?

Here are some key reasons why I find Barrick Gold more attractive than Kinross Gold for long-term investors with a…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

This Mineral Company Was on the Move in January 2023

While inflation is easing, this mineral company's stock is rising. How can you make money in this mineral stock?

Read more »

gold stocks gold mining
Metals and Mining Stocks

Is Now the Time to Buy Gold Stocks?

Gold prices can continue to rally throughout 2023, as inflation and interest rates peak, making undervalued gold stocks some of…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Thursday, February 9

As the ongoing corporate earnings season heats up, TSX stocks may remain volatile.

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Cameco Stock Is Approaching its 52-Week High: Time to Invest?

Cameco (TSX:CCO) stock is nearing 52-week highs once more after falling from September last year, but should you wait for…

Read more »