Iron Ore Price Decline Begins to Alarm Australia

Marcus Jacob
30 Aug, 2012
New York City

Australian stocks closed lower as iron ore prices declined to a 3-year low. Fortescue chairman, Andrew Forrest increased stake in the third largest iron ore company for the second day in a row. Building approvals dropped 17.3% in July and private sector capital spending increase slowed to 3.4% rise.

[R]7:30 PM Sydney – Australian stocks closed lower as iron ore prices declined to a 3-year low. Fortescue chairman, Andrew Forrest increased stake in the third largest iron ore company for the second day in a row. Building approvals dropped 17.3% in July from the previous month and private sector capital spending increase slowed to 3.4% rise.[/R]

The sharp selling in resource sector stocks overwhelmed indexes as the Australia’s largest export, iron ore face another day of price decline in international markets.

Iron ore prices declined US$4 to US$90 a ton in international markets as additional supply in the market in addition to the falling demand from China dragged the prices to a three year low.

The iron ore price is expected to weaken and may seek the bottom near US$80 a ton as steelmakers in China struggle with losses and bulging inventories of unsold steel products.

The ASX 200 index slumped 40.70 to 4,315.70 and the broader All Ordinaries declined 41.26 to 4,340.20.

The Australian dollar decreased to US$1.032 from US$1.036 on Wednesday.

Building approvals in July dropped 17.3% from the previous month and declined 10.6% from a year ago month, according to the data released by the Australian Bureau of Statistics.

The sharp swing in the approvals was higher than 5% estimated by most economists.

New private capital expenditure increased 3.4% after adjusting for season terms in the quarter to June. The final estimate of expenditure for fiscal 2012 was $155.03 billion not adjusted for inflation, 29.9% higher than a year ago.

The private capital expenditure surveys are conducted in seven quarterly surveys. The third estimate of the planned expenditure for the current fiscal year is 20.8% higher than the previous year third estimate to $181.53 billion.

Stock Movers

BHP Billiton Limited dropped 77 cents to $31.99 and, Rio Tinto Limited declined $1.91 to $48.63, a three-year low and Fortescue Metals Group slid 6 cents to $3.59.

Andrew Forrest, chairman of Fortescue purchased additional stake in the company for $18.5 million after spending $20 million to purchase 5 million shares and increase his total stake in the company to 32%.

Smaller mining companies with greater exposure to iron ore fell more after the current commodities price decline continued.

Iluka Resources plunged 56 cents or 5.7% $9.28 and Lynas Corporation Limited tumbled 4.5 cents or 6.3% to 66.5 cents. Newcrest Mining plummeted $1.43 or 5.4% to $25.27. Kingsgate declined 37 cents or 7.4% to $4.62 and Whitehaven Coal slipped 5 cents to $3.24.

Transfield Services decreased 6 cents to $1.85 billion after the company’s leader stepped down after the company was forced to lower profit outlooks several times.

Engineering contractors WorleyParsons slipped 13 cents to $26.19 and Monadelphous Group dropped 78 cents to $21.12.

Oil Search Limited closed unchanged at $7.46 and Santos Limited declined 39 cents to $11.16 and Woodside Petroleum slumped 55 cents to $34.09. Sundance Energy slid 2 cents to 68.5 cents.

Seven West Media edged down 1 cent to $1.49, Ten Network closed down 1 cent to 38.5 cents and Fairfax Media slid 0.5 cents to 44.5 cents.

Consolidated Media Holdings closed unchanged at $3.43 after it reported 15.6% decline in net profit.

Prime Media Group increased 6 cents after the regional broadcaster reported full-year net profit increased 1.9% from a year ago to $27.7 million.

Harvey Norman Holdings added 2 cents at $2.10 and Woolworths slipped 3 cents to $29.21. Kathmandu closed unchanged at $1.37.

Commonwealth Bank of Australia slumped 33 cents to $53.98 and Bank of Queensland decreased 5 cents to $7.52. ANZ declined 12 cents to $24.86. National Australia Bank climbed 11 cents at $25.20 and Westpac Banking Corporation dropped 10 cent to $24.76.
Macquarie Group gained 18 cents to $27.10.

Perpetual Limited declined 41 cents to $26.59 and the financial services reported profit dropped 57% on restructuring charges.

David Jones Limited lowered 2 cents $2.41 and Wesfarmers declined 22 cents to $34.19. Billabong International Limited closed unchanged at $1.35. Breville Group slid 3 cents to $5.45. Harvey Norman added 2 cents to $2.10.

Toll Holdings increased 16 cents to $4.71, Leighton plummeted 75 cents or 4.4% to $16.25 and property developer Mirvac Group closed unchanged at $1.34.

Qantas closed unchanged at $1.16 and Flight Centre gained 4 cents to $24 and Virgin Australia slipped 2 cents to 48.5 cents.

QR National slid 3 cents to $3.53 and Telstra added 3 cents to $3.85.