Iron Ore Price Tanks and the Fed Shakes Up US Metals Markets

Iron ore has continued its steep drop-off this week. Overnight it shed another 5.1% as it dipped to $66.09 a tonne. Its lowest price point since 17 July.

Weak demand is being blamed for the price massacre. Specifically, a cooling in the property market globally. Though China is once again the key indicator. The ABC reported that house prices in Shenzen are 2% lower for the year. They note:

The credit-fuelled construction boom has been a significant driver in the demand for steel and its raw materials — iron ore and coking coal.

This is on top of the already stringent rules now in place in China. The crackdown on industry polluters is still being felt and there is no immediate end in sight.

State-controlled media outlet Xiahua reported that steel operations have been ordered to cut steel production by up to 50% by as early as mid-November.

It’s certainly wreaking havoc on Aussie miners. Both BHP Billiton Ltd [ASX:BHP] and Rio Tinto Ltd [ASX:RIO] shares have lost 2.5% and 2.9% respectively since Tuesday.

Westpac analysts are forecasting some stability for iron ore until the end of the year, at least. Though they caution next year could bring more pain.

In other markets there were also plenty of jitters and uncertainty.

Crude Oil Price — US$50.71 a barrel: +0.32%
Brent Crude Oil Price— US$56.43 a barrel: +0.25%
Copper Price — US$6,480 a tonne: -0.7%
Nickel Price — US$11,005 a tonne: -3.3%
Gold Price — US$1,295 per ounce: -0.02%
Alumina Price — $384.16 per tonne: +2.56%

Oil’s future uncertain

Oil prices were fairly flat as the market looks to news from a major OPEC (Organisation of the Petroleum Exporting Countries) meeting, later today. According to Reuters, key members will discuss extending the 1.8 million barrels per day supply cuts in order to keep prices up.

Numerous analysts are tipping that the deal will be extended to beyond March 2018. They believe the prices are high enough to see some countries look to increase production beyond agreed levels.

All eyes once again will square firmly on what OPEC’s next move will be.

The Fed gives copper and nickel the boot

The US Federal Reserve has stated that it expects one more interest rate rise by the end of the year. It sent the US dollar skyrocketing to a two month high, which ultimately proved costly for traders.

Metals Consultant Gianclaudio Torlizzi, comments:

The losses are mostly currency driven. The dollar was the main culprit behind the August gains so now to see a higher dollar is pounding all the metals’.

Gold also takes Fed hit

As with copper and nickel prices, the market seems to be moving with the US dollar. It has dispelled a lot of the suspicions that North Korea was impacting gold price. It seems the market doesn’t care.

The real test will be what the future holds for the US dollar. The Fed’s meeting minutes have hinted at three rate rises next year, on top of the one at the end of this year.

Kitco’s Peter Hug, believes:

The intent may be there but it will remain data dependent and there is no certainty that U.S. economic growth can sustain that level of tightening.

If there is one thing that’s certain, there is plenty of uncertainty.

Alumina makes a breakout

In some positive news for Aussie alumina exporters, it seems Chinese interest is growing. According to Metals Bulletin, the increased demand for imports comes as local Chinese supplies hit a nine-year price high.

Though Chinese buyers are still wary as one trader explains:

We are willing to purchase cargoes that can be delivered in one month as we
don’t have a clear picture of the market afterwards. We are waiting for more
direction from the environmental protection policies on the industry
’.

At least for now, it’s a boon for our domestic players.

For a more detailed look at Aussie miners, check out our top 10. You can find everything you need to know in this handy report.

Regards,

Ryan Clarkson-Ledward,
Junior Analyst, Markets & Money


Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:


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