It could be an ugly day on the ASX today after a weak performance overnight in London trade for BHP and Rio Tinto.
The big two lost 1.7% and 3.1% respectively after more falls in the price of Iron Ore, which has lost close to 10% of its value so far in 2014.
The big drop stands in stark contrast to the IMF’s upgrade of global growth overnight which included an uplift to Chinese growth. But key to the price action on futures markets, and a potential precursor to to further falls, is that the $12 tonne drop so far in January has been accompanied by high volume futures trading, suggesting further falls ahead.
Indeed, The Australian this morning reports Credit Suisse’s head of commodities research, Ric Deverell, noted:
“We see growing risks for the current bout of price softness to give way to a full-blown break through the bottom of the trading range that has held since mid-2013.”
Credit Suisse thinks iron ore prices can fall as low as $100 tonne by the end of 2014 as extra supply comes into the market.
This fall in prices as volume comes online is exactly the way that the terms of trade reversal are expected to play out in the months and years ahead, as the mining investment boom morphs into a mining production boom – but with the extra volume driving prices lower.
It was always expected to occur this year and next and it is why Glenn Stevens and the RBA still want the Aussie dollar to fall further.
In the meantime, Australia’s miners could bear the brunt of further selling as iron ore prices continue to fall.