Market Report: Miners mauled on another manic Monday

The past few weeks have proved hard work for market commentators, with each plunge calling for an ever more outlandish hyperbole. After the New Black Monday, then Meltdown Monday, another 8 per cent plunge yesterday looked like Massacre Monday as miners and banks were smashed.

Big mining shares were decimated on a string of bad news, predominantly over fears of Chinese demand. The worst hit was Kazakhmys, which collapsed 26.5 per cent to 417.75p. It was closely followed by Kazakhstan rival Eurasian Natural Resources Corporation, which fell 23.4 per cent.

Broker Librum Capital pointed out that four large Chinese steel firms had been in talks to reduce their crude steel output by 20 per cent, which added to more general fears that demand would be further hit by the credit crunch.

Further bad news was prompted by the publication of the benchmark ferro-chrome prices, which fell 10 per cent in the fourth quarter. Added to falls in copper and Morgan Stanley and UBS lowering their price forecasts for next year, it was a bleak day for the sector.

Analysts at UBS said: "Longer-term, we remain very positive. We are struggling to see a supportive fourth-quarter catalyst for the mining space and suspect the sector will remain highly volatile." The Swiss broker speculated that should commodity prices fall another 25 per cent, earnings in the UK sector could fall by almost half this year.

Further bad news came from Ferrexpo. The group's shares were down 2.1 per cent to 115p after leading shareholder Kostyantin Zhevago sold almost 21 per cent at a staggering 30 per cent discount on Friday's close, so he could meet a margin call from JP Morgan. Elsewhere, Germany's weekend rescue of Hypo Real Estate, and problems at Unicredit in Italy, bolstered fears that the contagion was spreading.

Often the banks act as a counterweight to the miners but both were pummelled yesterday, as were the oil companies as crude prices fell. "There is nothing holding the market up out there," one trader said.

This contributed to yet another sea of red, as the FTSE 100 spiralled down 7.85 per cent to 4,589.19, its lowest for four years, and another of the biggest one-day falls ever.

In the banking sector, Royal Bank of Scotland lost a quarter of its value to slide to 148.1p, while HBOS, whose Lloyds deal is looking shaky, closed down 19.8 per cent at 160.2p. Nick Brown, sales trader at Xconnect said: "No one can maintain any coherent trading strategy when there's such volatility in the market."

The pub sector continues to be the focus of woes, with Whitbread down 11.7 per cent to 932p. Reports at the weekend found that the ban on shorting banks has prompted traders to target pubs and restaurants instead. This comes just days after the stock was cut by Citigroup, then Goldman Sachs.

Several companies flirted with positive territory before the US opening, including British Energy and Autonomy, but neither managed to hold on. The second tier fell in line with the top, with another miner, Aricom, propping up the index, 24.4 per cent down at 17p.

The housebuilder Taylor Wimpey was another casualty, falling 20 per cent to 27.75p. Fitch downgraded its credit rating from B to BB- after the markets closed on Friday, after Taylor had announced it was still in discussions with its banks to overhaul its debt covenants. Further uncertainty at the banks left the stock rocking yesterday. Cazenove said: "Conditions in the UK housing market are worsening and there is significant downside risk to our estimates during the remainder of 2008. Mortgage availability is worsening, and mortgage rates and deposit requirements are continuing to rise, further dampening an already extremely subdued market."

In the wider market, the sports fashion chain JJB Sports fell 25.5 per cent to 27p after credit insurer Coface withdrew cover to suppliers of the chain.

The standout performer on AIM was SPG Media, which agreed a takeover by The Progressive Board, worth £11.85m. Progressive agreed a 13p-per-share cash offer with SPG to buy out the remaining shares it doesn't own. Shares in the business-to-business media group rose 36 per cent to 3.25p.

Back in the day, Simon & Garfunkel sang: "It's all happening at the zoo", and it was happening yesterday for Zoo Digital Group. The group, which targets the home entertainment market, released a statement saying trading had improved during the first half of the year. It closed up 7.32 per cent at 11p.

The downside of AIM was dominated by miners and oil exploration and production companies. Petroceltic was the worst of the E&Ps, down 34 per cent, while Central African Mining, of Phil Edmonds fame, fell 38.89 per cent. There were rumours in the market that the group's owners might look to take the stock private at these levels.