The Chinese Finance Minister warned on growth yesterday which added to the Aussie dollar selling but it’s in the iron ore market where the biggest impact seems to have been felt.
Overnight the December 62% Fe iron ore contract fell $3.33 a tonne to crash through the psychologically important $80 a tonne level.
The close of $77.77 a tonne takes the fall in iron ore prices over the past year to more than $40. That’s a loss of around third of the price that iron ore fetched at the beginning of this year.
The only good news is that it is now closer to the longer term bottom on the monthly charts, just below the $70 we have highlighted in the past.
The problem with iron ore – as a largely producer and user market – as opposed to traded markets like gold and the Aussie dollar, is that a big fall like this is often associated with a “pessimistic crescendo” of selling which clears the decks for selling exhaustion and is often a precondition for buyers to come back into the market.
But the big global ore producers have signaled they are not unhappy with the news as a long-term stategy to drive out Chinese and other marginal producers. It’s a tactic the ACCC would not allow in the domestic economy but it is a tactic which the miners may be having too much success at as buyers strike and iron ore searches for bottom.
That said, it is likely to be another poor day’s trade on the ASX today after it fell 1.3% yesterday, led lower by mining and related stocks. Equally the fact the banks joined the selling suggests that there is more to the ASX weakness than just mining.
Team Australia is up for sale as investors recalibrate their expectations of growth.