Fears of a global recession have caused a slump in metal prices that could trigger a series of multibillion-dollar writedowns in the mining sector.

The price of copper fell nearly 8 per cent yesterday to $4,545 a tonne, its lowest since January 2006 and almost 50 per cent below its record of $8,940 in July. Aluminium was $2,178 a tonne on the London Metals Exchange yesterday, down a third from its peak of $3,380 a tonne, also in July.

Metals prices have fallen because traders are concerned that demand for raw materials will drop as consumer spending and construction slows.

This, in turn, has led to a huge sell-off of mining shares in recent months. Shares in BHP Billiton, the world's largest miner, have fallen 60 per cent over the past six months while Rio Tinto is down 66 per cent and Xstrata 75 per cent. However, the sell-off has become severe in the past two days as the slowdown in Europe and the United States appears to have spread to China, which is the main engine of metals consumption.

In the past two days, Rio's share price has fallen 776p to £20.50 (a drop of 27 per cent) and BHP has fallen 266p to 811p (25 per cent). Xstrata is down 402p to 914p (31 per cent).

The increased pessimism is a result of a statement by Tom Albanese, chief executive of Rio Tinto, that China's growth has slowed dramatically. Mr Albanese has been among the most bullish of mining bosses about prospects for continued strong growth in China this year. He has been insisting that Chinese growth would offset falling demand in the West because its economy is no longer driven by exports but by domestic consumption. Essentially, his argument is that even though Americans may not be buying fridges made in China, the Chinese have replaced that demand as their families have grown richer. That“decoupling theory” assumes that the booming economies of Asia and India had developed sufficient momentum largely to counter the West's financial difficulties.

With metals consumption in China slowing sharply, it seems that the country is not immune to wider economic turmoil. Charles Cooper, an analyst for Evolution Securities, said: “If consumers in China are finding it difficult going, that will flow through to the metal price and to the miners. It's quite ‘doom and gloom'.”

Mr Albanese expects China's metals demand to recover next year, but if the downturn in Asia is steep, as some of his rivals now fear, the mining sector will be hit badly.

China accounts for 25 per cent of global demand for copper, 32 per cent for aluminium and 47 per cent for iron ore and so even a small downturn in its economy will have a big influence on the mining sector.

The miners have enjoyed an unprecedented boom in the past decade as China, India and other rapidly growing countries have sought to modernise their infrastrucutre and as their consumers have been able to afford cars and other luxuries for the first time.

The miners have increased supply to gain from the higher demand and soaring prices, but the availability of diggers, power plants and mining engineers has remained limited. This has resulted in cost inflation of about 20 per cent a year and analysts are concerned that companies will be squeezed in the next year by falling revenue and built-in high costs.

Mr Cooper said: “There is a huge amount of cost inflation embedded in the miners and so as commodity prices fall, their profits will be squeezed. There is a lot of pain to be taken by the miners.”

Without rapid recovery in the world economy, mining companies will have to mothball projects to limit cost blowouts. This may result in big writedowns.

There is some upside for the largest miners, since smaller rivals are likely to struggle, reducing supply and cost pressures. The top-tier miners such as BHP, Rio and Xstrata have operations that are so big that costs of production tend to be the lowest in the industry. Companies with high production costs will be forced to mothball plants, as is happening in China's steel industry.

However, structural changes in the global economy, such as urbanisation in fast-growing developing economies, and the demand that this creates for steel and other metals to build homes is unlikely to change significantly. So, some think that the mining sector could recover more quickly than in previous boom-and-bust cycles.

China's citizens are moving to cities in their hundreds of thousands every year. McKinsey, the consultancy, estimates that China will need to build up to 50,000 skyscrapers in the next 15 years, which should help the miners to recover from what is likely to be a painful slowdown in the next year.

Down the mine: how chiefs' stakes have fared

Vladimir Kim, chairman of Kazakhmys. Down 80% in six months from £6.6 billion to £1.3 billion

His wealth derives mainly from being in charge of Kazakhmys, the Kazahkstan miner, as the shackles of Soviet state control were removed.

“I am not an oligarch. I am a businessman and want to run my business,” he has said. The fall also reflects his 15% stake in the Eurasian Natural Resources Corporation, another Kazakh mining company.

Mick Davis, chief executive of Xstrata. Down 78% from £17.5 million on May 21 to £3.79 million

The former accountant has set the Anglo-Swiss mining group on an aggressive course since he arrived in 2001. It has wolfed down rivals and grown from a small producer of steel alloys to one of the largest mining groups. This month Davis retreated from a hostile bid for Lonmin. He was paid nearly £4.6 million last year.

Nicky Oppenheimer, director of Anglo American. Down 68% since May 21 from £1.5 billion to £480 million

A scion of the De Beers diamond empire, he is on the board of the miner founded by his grandfather. He sold a third of his family's holding in Anglo in 2006, for about £250 million. Soaring commodity prices put him at 18 in the 2008 Sunday Times Rich List. His position next year is unlikely to be so elevated.

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