China steel concerns to weigh on Australian sharemarket

The Australian sharemarket is expected to start the week in the red following negative overseas leads.

The Australian sharemarket is expected to start the week in negative territory. Picture: NCA Newswire/Gaye Gerard

The Australian sharemarket is expected to start the week in the red following negative overseas leads, with resources stocks likely to drag the bourse lower and financials providing little support.

Iron ore miners are set to bear the brunt of the selling on Monday after the iron ore price tumbled 7.4 per cent to $US180.50 ($A245.75) a tonne at the end of last week.

“Given the lead in from the US and European markets and the fall in the iron ore and gold prices, we’re likely to see a softer start for our sharemarket,” CommSec chief economist Craig James said.

“It’s hard to see where any leadership will come from. Base metal prices were mixed more than anything else and the gold price was also down.”

The iron ore price is now more than 20 per cent lower than the $US233 a tonne it hit just months ago. Its slump comes amid growing fears of waning demand from Chinese steel producers as Beijing looks to reduce China’s steel output on the path to lower emissions.

Both Rio Tinto and BHP suffered declines in London trade late on Friday, with Rio dropping 2.9 per cent and the Big Australian falling 1.9 per cent.

The declines came after Fortescue suffered bruising losses in Friday’s session, dropping more than 5 per cent to $24.91 a day after it hit record highs on expectations of a bumper dividend when it hands down its full-year results later this month.

At the end of last week, the Dow Jones fell 0.4 per cent to 34,935.47, while the S&P 500 dropped 0.5 per cent to 4395.26 and the Nasdaq ended 0.7 per cent lower at 14,672.68.

The gold price, meanwhile, dropped $US18.60 to $US1877.20 on Friday, which will only add to the selling pressure on the mining sector.

The only support in the commodities space might be in energy stocks following a lift in the oil price, Mr James said.

Looking ahead, the RBA holds its monthly meeting on Tuesday, with onlookers waiting for any revision by the central bank on its bond purchase expectations amid ongoing lockdowns and economic uncertainty.

“The dramatic change in the outlook for the economy for the current half since the last meeting is likely to see the RBA delay the step down in its bond buying from September until early next year when the outlook improves again,” AMP chief economist Shane Oliver said.