One of the reasons that iron ore equities have recently out-performed previous bouts of weakness in the iron ore price is that this time around the Australian dollar is less over-valued. I’ve drawn up a chart of the iron ore price in Australian dollars to make the point:
This is important given that the majors do have some Australian dollar costs that helps offset iron ore price falls as the currency weakens. We’re still some way above the AUD iron ore price low of $85 in 2012. But in that period the price was only below AUD100 for 18 days. This time around it’s been seven days so far but will very likely remain so for much longer.
In short, within a couple of weeks the real impact of the iron ore price fall is going to be worse than the 2012 episode.
Chinese markets have opened down again with Dalian off 3 points and rebar futures down 14. Local miners are being pushed around by bottom-fishers again.
