China’s long weekend looks likely to impact more than just iron ore prices. Australian shares appear set to move lower, with mining stocks likely taking the brunt of these falls.
Already, iron ore prices have lost 0.3% on the Dalian Commodity Exchange to 501 yuan a tonne last Friday, according to Reuters.
Yesterday, iron ore traded at $69.50. It is expected, when china returns to trading today, that there will be some movement in spot markets. As we know, china’s economy health often reflects the price of iron ore.
Iron ore prices and the Australian economy
Australia is only a small country, because of this our economy is sensitive to shifts from larger countries like China. Firstly, Australia is a major commodity supplier to China, being our biggest trading partner.
Therefore, as China’s demand for commodities grew so too did its demand for steel production, which requires iron ore and coking coal — both of which Australia is rich in.
We have seen healthy iron ore prices, and investors of iron ore have also reaped the rewards.
This relationship, when it’s working well, is great for Australia…but like any dependence, it’s highly volatile and dangerous to the smaller and (generally) weaker party.
And so when China’s demand for iron ore comes to a crawl, tangled up in China’s own economic woes, we can expect Australian shares, mining and exploration shares particularly, will most likely be affected.
Impacts of iron ore prices on Australian shares
There’s little warning whether the iron ore prices will move higher or lower in the future. As for Australian shares, I think things should go back to normal pretty quickly.
That said, iron ore prices have maintained flat after China’s public holiday on Monday, and while things are set to pick back up, this remains to be seen. It seems we’ll have to wait and see how things unravel, and keep an eye on China’s economy.
For Markets & Money
PS: Aussie investors have seen great results from iron ore investments in the past. But Markets & Money resources analyst Jason Stevenson argues that the biggest gains in the mining sector aren’t made with big, conservative iron ore miners. He believes that your best opportunities lie in smaller, more speculative stocks. The kind that could see massive share price moves from a single positive drill-hole result. For 10 of his favourite mining stocks on the Aussie market this year, download his free report ‘Top 10 Mining Stocks 2018’ today.