The Chinese authorities' dampening of stimulus expectations, despite dwindling economic growth, is bad news for the mining sector.

We think BHP Billiton's (BLT) diversified approach should stand it in good stead if you want to retain exposure to the sector but its peer Rio Tinto (RIO) looks particularly vulnerable given a heavy earnings dependence on iron ore which continues to fall in price.

(Click on chart to enlarge)

Chart of the week

As the chart demonstrates, Chinese industrial output has slumped, with official figures for August showing growth in the sector's production – at 6.9% – slowing to its lowest level since the 2007/8 global financial crisis. China is the biggest global consumer of many of the metals and minerals produced by mining companies and the drop off in demand has seen prices for these commodities collapse.

The fall has been particularly acute in iron ore which has slipped below $80 per tonne for the first time in more than five years. The metal accounted for around half Rio's revenues in 2013 and earnings downgrades for the group therefore look inevitable.

Issue Date: 30 Sep 2014