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ASX bloodbath as iron ore price plummets

·2-min read
Trader with head in his hands, stock market ticker wall all in red.
It was a rough day for the ASX on Monday. Here's why. (Images: Getty).

Australia’s share market has seen its worst day since February as falling iron ore prices sent stocks into a sea of red.

The benchmark S&P/ASX200 closed 2.1 per cent and 155.5 points lower on Monday afternoon, with every category bar utilities taking a hit, wiping around $50 billion from the index.

The broader All Ordinaries index also finished 2.15 per cent lower, down 165 points.

Iron ore stocks were the worst hit with Fortescue and Rio Tinto down more than 3 per cent and BHP hemorrhaging 4.2 per cent.

The broader materials sector lost 3.7 per cent amid a steep fall in iron ore prices amid concerns over Chinese demand.

Singapore iron ore futures have fallen some 11.5 per cent today, taking them to a low of US$90 a tonne - a fall of more than 60 per cent since May.

It comes amid China’s crackdown on the real estate sector and concerns that Chinese mega-developer Evergrande is teetering on the edge of collapse.

Evergrande is one of the country’s biggest iron ore consumers, but there are fears that the developer’s US$305 billion woes are approaching Lehman Brothers proportions.

Shares in Evergrande dropped more than 15 per cent on Monday.

At the same time, China is attempting to reduce the environmental toll of its industrial sector by curtailing steelmaking.

Iron ore is Australia’s biggest export, and the key ingredient in creating steel.

According to Bloomberg Economics, every US$10 decline in the price of iron ore has a AU$3 billion - AU$3.5 billion impact on the Australian economy - a problem worsened with the two most populous states in lockdown for weeks to come.

UBS Global Wealth Management executive director of commodities and FX Wayne Gordon told Bloomberg Market’s China Open that the situation in China is a “perfect storm”.

What investors will be watching this week

While it’s a quiet week on the Australian economic calendar, other than the Reserve Bank of Australia’s release of its minutes on Tuesday, investors remain watchful of international movements and multiple central bank meetings.

In particular, they will be closely monitoring the US Federal Reserve’s interest rate decision on Wednesday local time.

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