An 18 month low for iron ore prices, weak Chinese export figures (but the bears ignored the solid Chinese import figures) and down went the market here yesterday, led by big falls in key mining stocks BHP Billiton (BHP), Rio Tinto (RIO) and Fortescue Metals (FMG).
Iron ore prices fell to $US114.20 a tonne over the weekend, and then to just over $US108 in trading yesterday and last night, the lowest since October 2012 last year. The news added to the weak start from offshore futures trading, and the 18% fall in exports for China last month – despite it being obvious the 10% rise in imports from a year ago, was solid.
Iron ore prices are now down 22% from the start of 2014 and its now in a bear market.
The local market lost 50 points, or 0.9%. but Australia wasn’t alone. Other Asian markets fell sharply yesterday as investors reacted to the weak data from China for February.
The MSCI Index (excluding Japan), fell 1.4% with the Nikkei in Tokyo off 1%, hong Kong off 1.8% and Chinese shares falling to a nine month low.
Chinese exports in February were hit by the crack down on over invoicing by Chinese companies and the impact of the Lunar New Year holiday at the start of the month.
Rio shares were off 5% and BHP fell more than 4% over the day.
Fortescue fell 9.4% to $4.92. That took the fall in the past two weeks to more than $1 a share.
Since February 21, when FMG’s shares broke through $6 for the first time since early 2012, the stock has dropped by 17% tracking the iron ore price as it fell.
BHP shares lost 4.1% to $36.16 and Rio Tinto fell 5.7% to $61.20.
FMG vs RIO vs BHP YTD – Miners correcting as iron ore weakens
Brokers RBS Morgans said in a client note yesterday that iron ore had fallen into a bear market as the global supply situation moved into a surplus.
For both BHP and Rio, the fall in prices and apparent rise in supply matches the warnings they issued in February with their latest financial reports.
While down 22% from the start of the year, the price is down more than 15% since late last month.
Banks from Citigroup to UBS predict a global surplus this year as Goldman Sachs was the first really to go negative on iron ore this year.
Supply is expected to start overtaking demand during the second quarter of this year, Goldman Sachs said earlier in the year.
The bank expects prices to average $US100 a tonne in the fourth quarter from $US122 a tonne this quarter
And remember that Chinese imports of iron ore rose 12% in February from a year earlier to 63.16 million tonnes, but tumbled 37.5% from January’s record of around 87 million tonnes. (Exports from Port Headland in WA to China were down last month.)
The record imports in January came ahead of the Lunar New Year holding and a rise in imports this month past the 70 million tonne mark would tell investors (those willing to listen, anyway) that Chinese mills were not as overstocked as western analysts claim they are.
Meanwhile another trade in Australia raised eyebrows yesterday.
Pacific Brands shares surged 8.6% to 56c yesterday. Someone traded a parcel of 10m million shares at 53c, and the buyer is sitting on a nice profit of $300,000 after a day’s work.
Pacific shares are still well under the 75c level they reached before the disappointing interim result on February 18, which saw them plunge to just under 52c cents last week.
