Iron ore futures collapsed today, falling 6.7 per cent. It’s a major component of steel and as such is viewed as one indicator of economic health in China.
As you can see from the charts below, it’s been getting crushed for a while. It’s at its lowest levels since 2009.
However, JPMorgan analyst Alessandro Abate thinks iron ore is poised for a turnaround. In a note to clients this morning, he writes:
Iron ore spot price: catalysts heading towards a reversal of spot price trend in September. Reasons: 1) recent iron ore spot price decline ($40/t in July/Aug), due to traders’ destocking on high inventory level and lagged recovery of Chinese steel demand; 2) current spot price implies a further reduction of Chinese domestic iron ore output (July at 115mt -8% m/m) going forward, in our view with 3) little sense for traders’ ‘selling frenzy’ at current iron ore spot price; as 4) cut of domestic Chinese steel output (705-710mt Aug annualized, with likely further downside going forward) likely to hit domestic miners and benefit iron ore seaborne traders (shift of demand away from expensive domestic miners’ output).
Shares of Rio Tinto, a major Australian exporter, fell 3.1 per cent in London trading today.
Here’s the monthly chart:
And here’s the yearly chart:
Photo: Bloomberg / Business Insider