CRASH: Iron Ore Was Crushed Again Overnight

Iron ore. Image: Atlas Iron.

The iron ore market was crushed last night as traders sold futures heavily across the board all the way out to the end of 2016.

While the November delivery of the 62% Fe, CFR China Swap Future was down 64 cents a tonne to $74,91 the December 2014 contract fell $3.02 to $70.94 but the December 2016 contract dipped $5.88 a tonne to $64.50 – that’s close to Fortecue’s cost of production, and that of a lot of the smaller pureplay miners like Atlas and BC Iron.

So it could be a big day for the local miners, especially the smaller guys.

But last night’s price crash also makes you wonder how low can iron ore go.

Back in May when it broke down through $100 a tonne we speculated it might head another $30 lower to $70 a tonne, just below last night’s low.

So, with the price having now hit my long held target I am closer to the bull case than many who see last night’s carnage would be.

There are two primary reasons for this.

First, last night looked like the kind of pessimistic crescendo necessary for price to start to build a base. And second, because iron ore has now hit the bottom of the channel it has been in for some time now – or close to it.

But traders the world over, including iron ore traders, know that you don’t try to catch a falling knife. They also know that Citibank last week downgraded their outlook to as low as $50 for iron ore, with around $65 the average.

So while iron ore at $70 is closer to bottom of the channel at the moment, the downward price pressure remains.

This is tough for the mining companies and a headache for federal Treasurer Joe Hockey, whose budget bottom line will be feeling the effects of the fall to the tune of billions of dollars thanks to the drop in associated tax receipts.

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