Falling iron ore price hurts big miners

THE sharemarket slipped backwards yesterday, with the big miners losing ground after another fall in the iron ore price and continuing weakness in commodity markets.

By InvestSMART · 26 Sep 2012

By InvestSMART ·
26 Sep 2012

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THE sharemarket slipped backwards yesterday, with the big miners losing ground after another fall in the iron ore price and continuing weakness in commodity markets.

Financial stocks also eased after the Reserve Bank warned that higher funding costs and subdued credit growth could dampen the profits of the country's big banks.

Defensive stocks performed well, with the consumer discretionary, IT, and telecoms sectors gaining ground, but not enough to counter falls in the materials and energy sectors.

The benchmark S&P/ASX 200 Index lost 12.6 points, or 0.3 per cent, to 4372.9.

IG Markets strategist Stan Shamu said high-yielding stocks such as banks had been helping to support the market until the release of a twice-yearly Financial Stability Review by the RBA.

The review suggested that conditions would get a lot tougher for Australia's banks, but it hoped that they would not take on riskier loans to try to sustain their profits.

NAB analyst David De Garis said the report also showed that the asset performance of Australia's banks had improved a little over the past six months, but the aggregate non-performing loan ratio was still higher than before the crisis.

"Banks' bad and doubtful debt charges have declined more substantially from the peak of the crisis, but now appear to have troughed," Mr De Garis wrote in a note to clients.

"Along with higher funding costs and lower credit growth, this has contributed to slower profits growth. [So] the RBA again has warned against the risk of banks easing lending standards in the 'pursuit of unrealistic profit expectations'," he said.

NAB shares climbed 8? to $25.58, CBA rose 23? to $55.31, ANZ lost 14? to $24.56, and Westpac slipped 4? to $24.54.

Among the big miners, Rio Tinto lost $1, or 1.8 per cent, to $53.97, while BHP Billiton shed 16? to $33.25 and Fortescue gave up 8?, more than 2 per cent, to $3.52.

Australia's largest goldminer, Newcrest, fell 37? to $27.77, and oil and gas producer Woodside Petroleum fell 35? to $33.65.

Telstra moved up 2? to $3.88 and health stock ResMed closed 8? higher at $3.84.

The spot price of gold in Sydney finished at $US1764.36 an ounce, up $US4.27.

Meanwhile, the dollar closed higher as the market continued to speculate about a rate cut at the Reserve Bank's October board meeting. At the Australian close, it was trading at US104.26?, up from US104.13.

National turnover was 1.4 billion securities worth $3.59 billion, with 394 stocks up, 526 down and 344 unchanged. AAP

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Frequently Asked Questions about this Article…

Why did the ASX slip yesterday and what does that mean for everyday investors?

The sharemarket fell after another drop in the iron ore price and ongoing weakness in commodity markets, which hit the big miners and materials and energy sectors. Financial stocks also eased after a Reserve Bank Financial Stability Review warned higher funding costs and subdued credit growth could dent bank profits. For investors, this shows how sensitive the ASX can be to commodity prices and central bank commentary.

How did falling iron ore prices affect major miners like Rio Tinto, BHP and Fortescue?

Big miners lost ground as iron ore fell: Rio Tinto fell $1 to $53.97, BHP was trading at $33.25, and Fortescue closed at $3.52. The article links these moves directly to the lower iron ore price and broader commodity weakness.

What did the RBA's Financial Stability Review say and how did banks react on the market?

The RBA warned that higher funding costs and weak credit growth could reduce banks' profits and cautioned against easing lending standards to chase returns. The market reacted with mixed bank moves: NAB was at $25.58, CBA at $55.31, ANZ at $24.56 and Westpac at $24.54, reflecting investor concern about future bank profitability.

Which sectors held up or outperformed despite the market fall?

Defensive sectors did relatively well: consumer discretionary, IT and telecoms gained ground. Examples include Telstra, which moved up to $3.88, and ResMed, which rose to $3.84.

What happened to other resource and energy stocks such as Newcrest and Woodside?

Resource and energy names were weaker: Newcrest fell to $27.77 and Woodside Petroleum slipped to $33.65. These moves were part of the broader commodity-driven weakness noted in the article.

How did gold and the Australian dollar move, and why might that matter to investors?

The spot price of gold in Sydney finished at US$1,764.36 an ounce, up US$4.27. The Australian dollar closed higher, trading at US104.26, up from US104.13, as markets speculated about a possible RBA rate cut at the October meeting. Changes in gold and the currency can affect resource company earnings and portfolio exposure to commodity and FX risk.

What were the market turnover and breadth figures for the day?

National turnover was 1.4 billion securities worth $3.59 billion. Market breadth showed 394 stocks up, 526 down and 344 unchanged, indicating a day where more stocks fell than rose.

What are the key takeaways for everyday investors from this market update?

Key takeaways: commodity prices (especially iron ore) can drive volatility in big miners and the wider market; central bank analysis and funding-cost pressures can weigh on banks; defensive sectors may offer relative stability in such conditions. Staying diversified and aware of sector-specific risks highlighted by the RBA and commodity moves is helpful for everyday investors.