CHART: Is the iron ore price fall linked to the Evergrande disaster?
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Iron ore, the steelmaking ingredient crucial to China’s massive infrastructure buildout, has mirrored the fortunes of besieged Chinese property behemoth Evergrande:
Iron Ore Vs Evergrande pic.twitter.com/DzNOBYC1Pm
— Pilbara Wolfee (@PilbaraWolfee) September 20, 2021
Iron ore traded in the futures market sank to $US90 a tonne overnight, extending the collapse of the economy’s top export to more than 60% from its May peak.
Oil prices also declined.
It comes as China’s largest property developer Evergrande faces collapse under a mountain of debt. The country’s most indebted company owes up more than $US300 billion in unpaid bills.
This has triggered shockwaves across the sector, with the valuations of other Chinese property groups also plummeting.
Iron ore began to slump after China made moves to cut steel production in a bid to slow pollution. The weakening of the world’s largest construction sector just adds to these earlier impacts.
Todd Warren, head of research for Tribeca Investment Partners, told Stockhead investors hoping for a return to elevated price levels for iron ore will need to wait until these factors that have clamped prices play out.
“It’s difficult to see catalysts in the immediate term that would be positive for the iron ore price,” he said.
“But if your timeframe is somewhere beyond six months, we would expect to see the market stabilise.
“Because six months out, puts you out beyond the Beijing Winter Olympics, it puts you beyond the Chinese winter, puts you beyond Chinese New Year, and you’re into a whole new buying season and the prospect that Chinese steel mills returned to some degree of normality.
“And therefore, the demand for iron ore returns to normality as well.”