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Iron ore price collapse wipes billions off top mining stocks

Teluk Rubiah distribution centre in Malaysia. Credit: Vale SA

The Northern China import price of 62% Fe content ore plunged 5% on Tuesday to a six-month low of $61.50 per dry metric tonne according to data supplied by The Steel Index. The price of the steelmaking raw material is now down by more than a third over just the last month.

The knock-on effect on the market value of the world’s top iron ore miners have been dramatic with world number four, Australia’s Fortescue Metals Group, a pure play iron ore producer, hardest hit. FMG stock has lost more than 23% of their value over the last month and the Perth-based firm is now worth US$15.6 billion on the ASX following a 7.5% drop in Tuesday trading.

“Iron ore prices have got a lot further to fall. They’re easily going to the $40”

World number one Vale is down 16.1% over the same period knocking $8.5 billion off the Rio de Janeiro-based company’s market capitalization. Diversified giants Rio Tinto and BHP Billiton between them have given up $19 billion since the iron ore price peak mid-March.

Chinese figures released on Monday showed an economy growing at a faster than expected pace of 6.9% in March on the back of a jump in fixed investment. The country’s blast furnaces also pumped out steel at a record pace of 72m tonnes in March to feed its red hot housing and construction sector.

But market attention has turned towards the supply side as stockpiles at Chinese ports continue to build and additional mine supply – including from domestic Chinese miners – comes on stream. And there are no shortage of iron ore bears.

Iron ore price collapse wipes billions off top miners
According to analysts at Liberum, a London-based investment bank, quoted by the Telegraph “a crackdown on cheap credit and mortgage lending could put a lid on house price rises, with a knock-on impact on construction”:

“That swing in demand growth is hugely damaging,” said Ben Davis, analyst at Liberum. “Iron ore prices have got a lot further to fall. They’re easily going to the $40s.”

In a note last week, David Pleming, of HSBC, said he expected a “massive fall” in the iron ore price this year. “Strong supply recovery and growth [will drive] a widening surplus in the iron ore market,” he said, adding that steel demand in China could “soften” in the third quarter of the year.

An April survey shows a median forecast price for iron ore of $57 a tonne during the final quarter of this year

FocusEconomics in its April  survey of analysts and institutions shows a median forecast price of iron ore of $57 a tonne during the final quarter of this year. For Q4 2018, analysts expect prices to moderate further to average $54 over the three month period.

Dutch bank ABN Amro is the most optimistic calling for a $75 average towards the end of 2017 while London-based Investec sees an average of $71.50 over the course of this year. Year to date iron ore is averaging $83.60.

BMO Capital Markets see prices correcting sharply from today’s levels to average $45 by the start of 2018 while Oxford Economics expects iron ore to average $72 this year but correct sharply to $51 in 2018.