A brutal session for the nation’s largest miners wiped out the share market’s gains for the week after iron ore prices collapsed to a 14-month low.
The S&P/ASX 200 skidded 56.5 points or 0.76 per cent as Fortescue Metals lost more than 11 per cent and BHP and Rio Tinto tested nine-month lows.
A week that included three days of tentative gains ended near where it began. The final tally for the week was a loss of three points or less than 0.1 per cent.
Today’s loss would have been greater if not for gains in Afterpay, CSL and Wesfarmers. Tech stocks provided another haven from the selling.
What moved the market
The perfect storm that has enveloped the nation’s most important export intensified this week as China clamped down harder on steel producers and the slow implosion of property giant Evergrande exacerbated fears about demand for materials from the Chinese property market. The spot price of iron ore has tumbled from around US$230 a tonne to US$106.50 in four months.
“The iron ore price has declined by over 50% since its all-time high in May 2021 amid China’s plans to scale down its steel production,” Kalkine Group CEO Kunal Sawhney said. “The recent weakness in iron ore price emerged after China recorded a drop in its steel production in August.
“Evergrande’s risk of default and tightening stimulus measures may prompt a slowdown in China’s property activity, exerting further pressure on the commodity,” he added.
Stocks in Hong Kong, where Evergrande is listed, touched an 11-month low this morning before rebounding. Shares in Evergrande sank 12 per cent
There was carnage in the domestic materials sector, with Fortescue Metals diving 11.48 per cent to its lowest close since July 2020. UBS analysts downgraded the miner to ‘Sell’ this morning. BHP sank 3.67 per cent to its weakest close since December. Rio Tinto also ended at a December low, falling 4.7 per cent.
Further down the food chain, Mount Gibson Iron dropped 10.53 per cent, Iluka 8.78 per cent, Minerals Resources 8.53 per cent, Whitehaven Coal 6.77 per cent, and South32 3.42 per cent. The gold sub-sector wilted 3.2 per cent following the yellow metal’s worst night in six weeks.
Overnight, US stocks closed mixed but broadly lower as an unexpected increase in retail sales handed the Federal Reserve another reason to reduce stimulus spending. The S&P 500 and Dow dipped between 0.1 and 0.2 per cent. The Nasdaq edged up 0.13 per cent.
Tech was the pick of the sectors after the Nasdaq outperformed the other US indices. A 2.53 per cent rise in US suitor Square lifted Afterpay 3.92 per cent. WiseTech gained 4.35 per cent, Megaport 3.27 per cent and Nextdc 1.83 per cent.
US-facing businesses caught a lift from a surging greenback. Transurban firmed 0.93 per cent, Brambles 0.81 per cent, CSL 0.34 per cent and ResMed 0.89 per cent.
Wesfarmers rose 0.53 per cent to a second straight gain since raising its bid for pharmaceutical wholesaler API. Woodside edged up 0.33 per cent and Macquarie Group 0.17 per cent.
Qantas rallied 1.47 per cent to a six-month high. Travel and tourism stocks traded near multi-month highs this week as NSW passed a vaccination milestone and Victoria eased some restrictions.
Iress tumbled 10.72 per cent after Swedish private-equity firm EQT abandoned its pursuit of the financial software maker. Iress said discussions had ended with the companies “unable to agree a transaction”. Iress reaffirmed its full-year guidance.
Cimic eased 2.26 per cent despite another contract win. A subsidiary will help deliver the new Western Sydney airport’s civil and pavement works. Design and construction will generate revenue of $265 million.
A week-long rally in uranium stocks showed the first signs of stress after several companies more than doubled in market value. Toro Energy slipped 8.16 per cent, Elevate Uranium 4.29 per cent and Brookside Energy 3.45 per cent.
The gloomy mood pulled most of the big four banks lower despite a spike in lending rates. ANZ lost 0.61 per cent, NAB 1.1 per cent and Westpac 0.46 per cent. CBA gained 0.03 per cent.
Newcrest dived 3.1 per cent to a six-month low after the surging US dollar pushed gold down more than 2 per cent. Perseus gave up 4.75 per cent, St Barbara 6.31 per cent and Gold Road Resources 5 per cent.
Asian markets overcame early weakness even as Evergrande declined. The Hang Seng in Hong Kong, where the Chinese giant is listed, briefly fell 0.6 per cent to an 11-month low before reversing to a gain of 0.21 per cent. The Asia Dow rose 0.26 per cent and Japan’s Nikkei 0.55 per cent. China’s Shanghai Composite dipped 0.39 per cent
US futures turned positive as the mood in Asia improved. S&P 500 futures firmed three points or 0.07 per cent.
Gold bounced off last night’s four-week low. The yellow metal rose US$5.50 or 0.33 per cent to US$1,762.50 an ounce.
Brent crude faded 17 US cents or 0.22 per cent to US$75.50 a barrel.
The dollar edged back above 73 US cents, rising 0.17 per cent to 73.04 cents.