Fears of a slump in demand for iron ore resulted in mining stocks taking a hit this week, as the reality of a massive oversupply of Chinese steel became apparent.
Benchmark iron ore prices fell to $US90 a tonne on Thursday, and by yesterday had fallen to $US88.70, levels not seen since the financial crisis. They peaked at around $US190 a tonne last year and were at $US134 a tonne as recently as two months ago.
That meant mining stocks took a hit on Thursday, but by yesterday shareholders were snapping them up, buying names like Rio Tinto after it dipped below $50 for the first time since mid 2009.
Over the week, Fortescue Metals lost 44?, to $3.54. The group chairman, Andrew Forrest, spent nearly $39 million in two days to increase his shareholding in the mining company he founded, helping its share price to stabilise.
For the week, the benchmark ASX200 index lost 32.8 points, or 0.75 per cent, to 4316.1 points.
Over the month-long profit reporting period, BHP Billiton's scrapping of the $30 billion Olympic Dam mine expansion, Qantas's first loss since privatisation and Fairfax's write-down driven $2.7 billion loss delivered the biggest horror headlines.
But the Commonwealth Bank delivered its biggest-ever profit of $7.1 billion and BHP its second-biggest with $US15.4 billion ($15.02 billion). And before a slump in iron ore prices hit some mining stocks, miners and mining services companies generally performed well, including a record profit for Fortescue Metals.
By yesterday market watchers had became increasingly excited about a meeting of central bankers in the US, an annual symposium in Jackson Hole, Wyoming.
The US Federal Reserve chairman, Ben Bernanke, was due to speak last night Sydney time. This time last year he used the event to foreshadow a second round of quantitative easing. The prospect of a repeat performance excited the markets.
For the week, BHP Billiton lost $1.30, to $31.79, as the company sold its Western Australian Yeelirrie uranium deposit to Canada's Cameco Corporation for $US430 million ($414.24 million).
Newcrest Mining fell $2.55 to $24.65. Australia's largest goldminer suspended production at its flagship Lihir mine in Papua New Guinea amid a dispute with landowners.
Transfield Services fell 19.5? to $1.835 as the head of the construction and maintenance firm stepped down after turning a full year loss into a healthy net profit of $84.8 million.
Perpetual fell 73? to $26.48 as the fund manager announced more job cuts as it continues with a major restructure that contributed to a 57 per cent drop in its full year profit.
Flight Centre rose 41? to $23.90. The travel operator said it expects to boost the number of its outlets around the world by up to 8 per cent and add 1000 new sales staff to its global workforce.
Toll Holdings rose 8? to $4.63. The transport and logistics group said resolving problems in its business in Japan and its marine shipping operations in Asia are its current priority.
WorleyParsons rose 4? to $2.52. The giant engineering company says the slowdown in the Australian resources sector has had a relatively minor effect on the global company.
Seven Group Holdings rose 84? to $8.12 after the media and earthmoving-machinery company said strong activity in the resources sector was likely to continue.
with agencies
ALL ORDS AUSTRALIA.
AUG 24 TO AUG 3
4339.0
-37.4 (-0.8%)
HIGH 4386.9
LOW 4339.0
SOURCE: BLOOMBERG
Frequently Asked Questions about this Article…
Why did mining stocks fall this week and what happened to iron ore prices?
Mining stocks fell after fears of a slump in demand for iron ore as a result of a massive oversupply of Chinese steel. Benchmark iron ore prices dropped to about US$90 a tonne on Thursday and then to US$88.70, levels not seen since the financial crisis (they peaked near US$190 a tonne last year and were about US$134 two months ago).
Are investors buying mining stocks after the sell-off—are these companies seen as bargains?
Yes—after the initial sell-off some shareholders began snapping up beaten-up mining names, seeing value after big falls. For example, Rio Tinto dipped below $50 for the first time since mid‑2009 and buyers stepped in, and Fortescue’s founder Andrew Forrest spent nearly $39 million over two days to increase his holding, helping stabilise the share price.
How have major miners like BHP, Rio Tinto and Fortescue been affected recently?
BHP fell about $1.30 to $31.79 for the week and sold its Yeelirrie uranium deposit to Cameco for US$430 million. Rio Tinto slipped below the $50 mark. Fortescue dropped roughly 44% to $3.54 despite having reported a record profit earlier; the company’s chair also bought shares to shore up confidence.
What big corporate results during the reporting season influenced the market?
Several headline results moved markets: Commonwealth Bank posted its biggest-ever profit of $7.1 billion, BHP reported its second-biggest profit at about US$15.4 billion, Qantas recorded its first loss since privatisation, and Fairfax posted a $2.7 billion write-down that drove a large loss.
How did the iron ore slump and profit announcements affect Australian market indices like the ASX200 and All Ordinaries?
The ASX200 fell 32.8 points (about 0.75%) to 4,316.1 points over the week. The All Ordinaries was reported at 4,339.0, down 37.4 points (‑0.8%), reflecting the hit to resource stocks and other mixed corporate results.
Did central bank events influence investor sentiment this week?
Yes—investors were watching an annual central bankers’ symposium in Jackson Hole, Wyoming, where Federal Reserve chairman Ben Bernanke was due to speak. Markets were excited by the prospect he might signal more monetary stimulus, after he used the event last year to foreshadow a second round of quantitative easing.
What other company-specific news from the resources and services sectors should everyday investors note?
Several company updates stood out: Newcrest Mining suspended production at its Lihir mine amid a landowner dispute; Transfield Services saw its chair step down after a volatile year; Perpetual announced job cuts and reported a 57% fall in full‑year profit; WorleyParsons said the Australian resources slowdown had a relatively minor effect; and Seven Group Holdings flagged continued strong activity in the resources sector.
What should everyday investors keep watching after this wave of mining volatility?
Watch key drivers highlighted by the market: iron ore price movements and global steel demand (particularly from China), corporate profit announcements from major miners and services firms, and speeches or policy signals from central bankers (such as the Fed at Jackson Hole) that could affect liquidity and risk appetite.
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