Falling commodity prices have challenged Australia’s significant mining sector. This is especially true for Australia’s largest commodity export; iron ore. The price for this all-important commodity has fallen once again, dipping below $US50 per tonne before levelling off around $US51.35. The plummeting commodity has directly impacted Australia’s trade deficit, which has been in the red for 11 months straight now. The trade deficit for February came in at $1.26bn, the largest deficit in five months. “The latest trade figures are certainly disappointing but not unexpected," said CommSec economist Savanth Sebastian. “Given the reliance on the mining sector to drive exports there is no doubt likely to be more volatility in future monthly trade data.”
Iron ore has fallen more than 25 per cent so far this year and has plummeted more than 73 per cent since reaching its peak in 2011. Westpac is now forecasting that iron ore prices will bottom out at $US47 per tonne this year before recovering to $US69 per tonne sometime in 2016. "It is very unlikely that 2015 will bring much joy for spot iron ore prices. For the near term Australia and Brazil will continue to expand production, even at current prices, maintaining downwards pressure," Westpac economist Justin Smirk said. Falling iron ore prices have been particularly troubling for Fortescue Metals Group (ASX:FMG). In a recent report from the mining company, it underlined its breakeven price point at $US52. As commodity prices continue to struggle, so too does Fortescue. Shares of FMG are down 66.58 per cent in the last 12 months and 33.39 per cent so far this year.
Author: Simon Herrmann
Apr 02, 2015
Simon is a financial analyst at independent research firm Wise-owl who wants to change the world by disrupting the cliché approach to investment decision making with convergent thinking. Wise-owl’s goal is plain and simple: Find the best opportunities for our members by following a proven methodology and to create long-term value through high-quality advice, innovation, technology and education. We combine industry experience and the agile mentality of a start-up. Wise-owl is the future of stock market investing.