The Monday Report – 20 September 2021

Daily Market Reports | Sep 20 2021

By Greg Peel

Material Weakness

It started with Beijing’s clampdown on steel production in the name of the environment, supposedly, and was exacerbated by the gradual collapse of China’s biggest property developer, Evergrande, owing $400bn to state-owned banks. Throughout the earlier stages of the plunge in the iron ore price, the big miners were supported ahead of going ex-dividend.

Thereafter they still saw some support as iron ore fell below the production cost for higher-price producers but on Friday, the levee broke.

Evergrande went bankrupt, the Chinese iron ore futures price dipped below US$100/t and brokers moved to downgrade the big miners, including UBS downgrading Fortescue Metals ((FMG)) to Sell.

Fortescue was the worst performing index stock on Friday as the materials sector dropped -4.0%. BHP Group ((BHP)) fell -3.7% and Rio Tinto ((RIO)) -4.7% while Mineral Resources ((MIN)) lost -8.5% and Mt Gibson Iron ((MGX)) -10.5%.

Falls among material names were not reserved for iron ore. Iluka Resources ((ILU)) dropped -8.8% and Whitehaven Coal ((WHC)) -6.8% while gold miners were again hit on another failure for the gold price.

There was contagion among oil & gas companies, with energy dropping -1.3% and utilities -1.9%. Beleaguered AGL Energy ((AGL)) fell another -6.6%.

The only non-resources company on the top-five losers’ board was Iress ((IRE)), which fell -10.7% after private equity suitor EQT decided its original thesis didn't hold up, having conducted due diligence up until then.

Outside the resource sectors the next worst fall was in consumer staples (-0.7%) but all of discretionary, healthcare, industrials, property and technology closed in the green, the latter by 2.1% on the back of a rise in the Square share price.

Things aren’t looking much rosier today, with spot iron ore falling another -5% on Friday to be down -22% for the week and holding, for now, right on US$100/t. Base metal prices were fairly quiet on Friday, as was gold, but silver fell -2% and the oils are weaker.

With the S&P500 down -0.9% on Friday night our futures were down -0.6% on Saturday morning.

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