CHART: Why The Market's Talking About The Price Fall In Iron Ore, Australia's Number One Export

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There are rumours today that steel mills and traders are holding off on purchases, playing the waiting game to see just how far iron ore will drop below the all important $US100 a tonne mark after price falls in the past 48 hours have broken the September 2012 low of $US99.47.

Companies and traders in Australia are especially interested as the commodity is Australia’s biggest export. In 2012 Australia exported more than $54 billion in iron ore and concentrates – greater than the total exports of the entire services sector.

What’s driving the change in behaviour from Chinese buyers, who up until recently were happy to accumulate large iron ore inventories as the price fell more than 20% this year, is the recent break of this year’s low in the iron ore price. For the technicians this suggests the price could fall another $US30 a tonne in the weeks and months ahead.

Traders do what traders do, and are either selling aggressively or stepping aside to see where the ultimate bottom is.

Adding to the downside pressure are high Chinese inventory levels, lower steel demand and slowing growth in China. There’s more on that here.

If a fall of this magnitude occurs Australia’s iron ore miners would be under pressure. Iron ore margins vary dramatically, with majors Rio Tinto and BHP Billiton who have all-in costs just above the $40 mark while Atlas Iron and Fortescue Metals Group are at the other end, with costs around $70 a tonne.

After getting hammered on the market yesterday miners’ shares are holding stronger today, this is because individual companies can react to commodity price fluctuations by ramping up volume or cutting costs.

Traders will be watching closely.

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