Major miners slump on lower iron ore price
Fortescue, BHP and Rio are among miners that have taken a beating on the local sharemarket, as iron ore prices slump to a two-year low.
The major miners took a beating on Friday as the iron ore price slumped to its lowest level in more than two years.
Iron ore futures fell to US$79.95 a tonne on the November contract on Friday afternoon as a bleak economic outlook and a softening of China’s property market weighed on the outlook for global steel demand.
Prices have fallen more than 50 per cent from a peak in March, and are down to their lowest level since May 2020.
The price slide sent the local materials sector 4 per cent lower on Friday, with Fortescue Metals closing the day 8.2 per cent lower at $14.76, BHP slipping 5 per cent to $37.48 and Rio Tinto down 4.1 per cent to $88.55.
It came as the world’s second biggest iron ore producer, Vale, posted a worse than expected drop in quarterly profit.
The Brazilian mining giant reported adjusted earnings of $US3.7bn ($5.7bn) for the third quarter, down 47 per cent from the same time last year.
ANZ Research suggests further downward pressure on iron ore prices will continue into next year as China’s housing industry fails to show any signs of a rebound.
“Property indicators are showing little sign of recovery. New starts and buildings under construction have fallen nearly 50 per cent year-on-year,” ANZ analysts said in a note.
“With the National Development and Reform Commission pushing for crude steel production cuts in 2022 and environmental curbs in winter, we see demand risks for iron ore prices.”
ANZ cut its three month price target to US$85 a tonne earlier this week, while its 12-month target was lowered to US$80.
Adding to the pricing pressure has been a build-up in Chinese steel inventories after a seasonal pick-up in demand failed to materialise. According to ANZ, there are also signs that weakness in steel demand is emerging in other parts of the world, including in the US.
“Global steel production is estimated to contract by nearly 5 per cent year-on-year this year. Narrowing profit margins would also keep production subdued,” it said.
Fortescue reported on Thursday that its realised price had fallen in line with the dip in the iron ore price, with the company receiving an average $US87.43 a dry metric tonne in the first quarter of 2022-23 – down from $US108 a tonne in the June quarter.
Inflationary pressures, led by fuel and labour costs, are also hitting the mining sector, with Fortescue’s average cash production costs up 16 per cent compared to the same time last year, at $US17.69 a tonne.
However the company booked a strong start to the new financial year, shipping 47.5 million tonnes in the first quarter, the highest volumes ever achieved by the company in the three months to September 30.
Meanwhile Treasury’s latest forecasts, outlined in the federal budget on Tuesday, point to a drastic fall in commodity prices at the back end of the financial year, tipping iron ore and coal will return to long-run pricing levels years ahead of market predictions.
Treasury’s latest projections suggest iron ore prices will fall by 36 per cent to $US55 a tonne at the port.
Although most analysts are predicting a falling iron ore price on the back of weakness in the Chinese economy, CBA forecasts suggest the falls over the next six months will be closer to around 15 per cent.
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