Iron ore price slump drives down Australian mining stocks

http://www.theguardian.com/world/2014/may/20/iron-ore-price-slump-hits-australian-stocks

Version 0 of 1.

Australia's biggest mining companies are suffering another day of losses after the price of iron ore hit an 18-month low due to worries about oversupply in China.

Rio Tinto was down 0.67% at $59.70 in morning trading while its rival BHP Billiton was down 0.56% at $37.22 as the price of iron ore fell below $100 overnight on Monday. It is currently trading at $98.50, its lowest point since September 2012.

Some analysts believe Australia's most lucrative trading commodity could slump to 2012 levels of around $US86 a tonne. A fall in the price would hit the profitability of mining companies and, in turn, reduce government tax revenue.

"At a time when there are question marks over the robustness of the Chinese economy and particularly its steel industry and its demand for steel, it's not surprising that we've seen the iron ore price retrace as it has," Mine Life Resources analyst Gavin Wendt said.

"If market sentiment stays where it is, we could see prices down at $US90 a tonne."

He said there was more iron ore being produced in the Pilbara region of Western Australia than ever before and supply was catching up with demand.

Volatile iron ore prices regularly track the perceived health of the Chinese economy.

Fortescue Metals Group, controlled by Andrew Forrest, has endured a 22% share price fall over the past five weeks. However, it was up slightly on Tuesday morning at $4.39.

Revenue falls could affect the speed at which the company repays its large debt.

CMC Markets chief strategist Michael McCarthy said despite the fall in the spot price, Chinese buyers often pulled back at this time of year to support their contract negotiations.

"Technically, it does look weak and it has continued to trend down for the last two weeks," McCarthy said.

"It does look like it might head for a test of that September 2012 low of around $US86."

Investors and analysts will be carefully watching the release of Chinese manufacturing figures on Thursday for indications of further price falls.