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The big three iron ore producers led an ASX retreat following reports of falling Chinese steel production and rising stockpiles.

The S&P/ASX 200 declined 49 points or 0.7 per cent by mid-session, obliterating Monday’s 24-point rally.

BHP, Rio Tinto and Fortescue Metals steered the market lower following drops in ore and copper over the Australia Day break. Afterpay, Wesfarmers and some of the banks cushioned the market from a deeper loss.

What’s driving the market

The heavyweight miners fell further from record heights amid price pressure as steel piles up at Chinese mills. Reuters reported utilisation rates at steel mills fell last week for a fifth straight week. Inventories increased by 6 per cent from the previous week in a possible sign of weakening demand. China’s current five-year plan emphasises a move towards reusing scrap metal in a bid to reduce pollution.

Fortescue Metals slid 5.6 per cent to a three-week low. Rio Tinto dropped 3.3 per cent and BHP 3.2 per cent. The spot price for iron ore landed in China skidded $3.85 or 3.2 per cent to US$164.65 a tonne yesterday.

The market returned from yesterday’s public holiday to a broadly negative set of leads. Wall Street’s three major indices eased overnight following a mixed close on Monday. Overnight, the S&P 500 dropped 0.15 per cent amid signs of growing resistance to President Joe Biden’s coronavirus relief package.

“The US$1.9 trillion stimulus package may be more hard fought than previously thought, and may not be approved until March,” NAB Director of Economics Tapas Strickland said.

US futures edged higher this morning following a well-received after-market earnings report from tech giant Microsoft. S&P 500 futures rose six points or 0.15 per cent. Nasdaq futures jumped 0.6 per cent. Microsoft shares gained 3.7 per cent in after-market trade.

The local market largely ignored news inflation was stronger than expected last quarter. The Consumer Price Index climbed 0.9 per cent as petrol prices rose from Covid-depressed levels and free government childcare was wound back.

Going up

Woolworths, Wesfarmers and two of the big four banks fought a rearguard action against the broader market trend. Woolworths gained 0.5 per cent and Wesfarmers 1.3 per cent. Commonwealth Bank added 1 per cent and NAB 0.4 per cent. Westpac slumped 0.7 per cent. ANZ lost 0.9 per cent.

Tech stocks also resisted the trend as the reaction to Microsoft’s result raised hopes for tonight’s Nasdaq performance. Xero climbed 6.2 per cent, Altium 3.4 per cent and Afterpay 2.1 per cent.

Reliance Worldwide was the index’s second best performer, soaring 7.1 per cent on a 13 per cent hike in half-year sales. IDP Education +7.5 per cent, Pro Medicus +5.7 per cent and Xero made up the rest of the top four.

Going down

Damage to the materials sector extended far beyond the big three ore producers following pressure on copper and other commodities. Oz Minerals sank 6 per cent, South32 3.6 per cent and Mineral Resources 3.6 per cent. Steelmaker BlueScope lost 4.8 per cent. Goldminers Silver Lake and Gold Road shed 5.2 and 4.2 per cent, respectively.

Mineral sands miner Iluka was knocked down 4.8 per cent after reporting sharp declines in zircon and rutile production. Overall production declined to 585,000 tonnes last quarter from 702,000 over the same period last year.

An 8 per cent slump in crude production last quarter sent Beach Energy down 4.2 per cent. Oil Search dropped 3.3 per cent despite reporting a record quarter of natural gas production. A weak session for the energy sector saw Santos fall 3.1 per cent and Woodside 3.3 per cent.

CSL dropped 1.2 per cent on news the CEO of AstraZeneca, Pascal Soriot, had stood down as a director over a potential conflict of interest after Astra acquired US pharmaceutical company Alexion.

Air New Zealand sank 2.1 per cent after Australia closed its border with NZ for 72 hours in response to a case. NZ Prime Minister Jacinda Ardern said the snap closure would dent traveller confidence.

Other markets

A brighter session on Asian markets saw China’s Shanghai Composite rise 0.11 per cent, Hong Kong’s Hang Seng 0.33 per cent and Japan’s Nikkei 0.53 per cent.

Brent crude rose 17 cents or 0.3 per cent to $US55.81 a barrel. Gold retreated $5 or 0.3 per cent to $US1,845.90 an ounce.

The dollar retreated 0.06 per cent to 77.46 US cents.

Hot today

Progress towards producing a substitute fertiliser for African farmers lifted shares in explorer and developer Minbos Resources (ASX:MNB) 50 per cent. The company announced it had executed a Mineral Investment Contract for a phosphate project with the Angolan government. The aim is to produce enhanced phosphate to replace imported fertilisers. The signing of the contract clears the way for Minbos to complete approvals, strike land and port access agreements and arrange offtakes.  

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