Rate Cut in Australia; Vale Lowers Iron Ore Prices 23%

Marcus Jacob
06 Dec, 2011
New York City

Australian stocks declined after Reserve Bank lowered its benchmark rate 25 basis points to 4.25%. The second rate cut in as many months also raised worries that the growing debt contagion in the euro zone may affect Australia. Santos Limited began its gas processing plant in Western Australia.

[R]8:00 PM Sydney – Australian stocks declined after Reserve Bank lowered its benchmark rate 25 basis points to 4.25%. The second rate cut in as many months also raised worries that the growing debt contagion in the euro zone may affect Australia. Santos Limited began its gas processing plant in Western Australia.[/R]

Australian stocks halted a 6-day rally after the benchmark rate was lowered by the Reserve Bank of Australia.

The central bank cut the rate by 25 basis points to 4.25%, the second cut in as many months. The latest cut prompted worries that Australian banks and the economy may be ensnared in the growing debt contagion in the euro zone.

Australia exports only 7% of its products to the euro zone and ships 26% to China but any material slowdown in the euro zone will also affect the economy in China and Asia.

The ASX 200 index fell 64.1 or 1.5% to 4,257.2 and All Ordinaries index declined 1.5% or 63.3 to 4,316.20.

The Australian dollar edged higher 0.3% to US$1.023.

Australia is scheduled to release third quarter gross domestic product data tomorrow and most economists are anticipating an annual increase of 2.3%.

Brazil based iron ore miner Vale agreed to a price cut of 23% for deliveries in the current quarter to December to Taiwan based China Steel.

Steelmakers have demanded higher prices cuts after spot price of iron ore declined 31% in October. The current prices demanded by steelmakers ranges between $130 and $140 a ton compared to $175 a ton prices demanded in the third quarter to September.

Stock Movers

BHP Billiton Ltd fell $0.55 to $36.71 and Rio Tinto Ltd decreased $1.45 to $65.55. Newcrest Mining declined $1.40 to $33.99.

Fortescue Metals Group decreased 3 cent to $4.82, Lynas Corporation Limited closed down 10 cents at $1.26 and Iluka Resources fell $0.73 to $14.91.

Oil Search Limited traded down 7 cents to $6.48, Santos Limited fell 18 cents to $13.36 and Woodside Petroleum fell $0.71 cents to $33.48.

Santos said its Devil Creek gas processing plant has started production that will boost gas production in Western Australia by 20%.

Orica declined 46 cents to $25.85 after the chemicals and explosives makers said it will resume some of its operations at its Newcastle operation after a chemical leak.

Commonwealth Bank of Australia fell $0.26 to $49.70 and National Australia Bank decreased 37 cents to $24.28. ANZ edged down 6 cents to $20.99. Westpac declined 23 cents to $21.46.

David Jones Limited closed up 2 cent to $2.90 and Wesfarmers Limited fell 40 cents to $32.20. Harvey Norman Holdings closed down 1 cent at $2.15.

Woolworths Limited closed up 5 cents to $25.52 and James Hardie Industries SE increased 3 cents to $6.98.

Qantas Airways Ltd closed up 4 cents to $1.64, Virgin Australia closed unchanged at 35.5 cents and Flight Centre rose 1 cent to $19.48.

QBE Insurance Group Limited increased 8 cents to $14.37.