Tech volatility, dollar strength reverberate through mining stocks

After sitting at or near record highs a little over a week ago, shares in BHP Group, Rio Tinto and other top miners spent have much of the past week in the red as jitters about AI spending and a rising dollar cast shadows over what have been potent tailwinds for the sector.

For decades, the stocks of major global miners have essentially been a proxy bet on China’s economy, as its infrastructure and real-estate buildout gobbled up huge volumes of the iron ore that powered miners’ profits.

But the recent selloff shows how the industry’s fortunes have become increasingly tied to other forces. They include the performance of AI hyperscalers spending hundreds of billions of dollars annually on building data centers that require large amounts of metals.

BHP shares steadied Friday in Sydney but ended the week more than 10% below a record close on June 17. Australia-based BHP is the world’s biggest miner by market value.

BHP and other top miners have made copper the focus of their growth plans, betting that vast quantities of the highly conductive metal will be needed not just for data centers but also for the energy networks that power them. For the first time, copper accounts for more than half of BHP’s underlying earnings.

“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,” said Global X ETFs investment strategist Justin Lin.

The stocks of big Australian miners, in particular, have benefited from a lack of options for investors wanting to put their money behind the AI theme. “That pushes capital flows toward BHP almost by default from investors who want some AI-linked exposure but are constrained to the local market, whether by mandate or simple home bias,” said Lin.

But tech stocks have fallen hard this week on mounting fears about the massive borrowing and spending required for the data-center buildout.

At the same time, the U.S. dollar has climbed to its highest point in more than a year against a basket of currencies, fueled by expectations the Federal Reserve could raise interest rates within months, after new Chairman Kevin Warsh set a hawkish tone at his first rate-setting meeting.

The stronger greenback has spooked a lot of investors who bet on mining as part of what is known on Wall Street as the debasement trade, in which assets such as gold are favored over currencies, 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,” Morgan Stanley said.

An appreciating greenback is widely viewed as a headwind to demand for dollar-denominated commodities, as it makes them more expensive to buyers using other currencies.

To be sure, the past week’s pullback erases only a small portion of the gains from a rally that has seen the Sydney-listed shares of BHP and Rio Tinto repeatedly set new all-time highs this year. In London, shares in Glencore and Anglo American are also sharply higher year to date.

Analysts say that while surging tech stocks can be vulnerable to wild swings, crucial pillars of support for their rally remain in place.

For mining stocks, “the basic thesis remains unchanged, despite short-term volatility,” said Darko Kuzmanovic, a senior portfolio manager on the global natural resources team at Janus Henderson Investors.

In addition to AI, electrification, decarbonization and deglobalization are all positive tailwinds for the mining sector, according to Kuzmanovic.

“If you look at the way these stocks have performed, every dip is bought,” he said.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com