The Trade: Australian miners struggle as iron ore prices plummet

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This video was created on 15 August for IG audiences by ausbiz.

IG's Hebe Chen provided an in-depth analysis of Iron Ore market trends affecting leading producers and Australian miners. Australia’s iron ore producers, including BHP, Rio Tinto, and Fortescue Metals Group (FMG), are under significant pressure as iron ore prices have dropped by as much as 40% this year, currently hovering around the $100 mark.

This decline is largely attributed to lower demand from China’s steel producers, who are facing a challenging economic environment, particularly as the winter season exacerbates these difficulties. BHP's share price, in particular, has fallen by 20% since the beginning of 2024, reflecting the broader struggles in the sector.

Technical analysis signals further downside for BHP

The technical outlook for BHP suggests more potential downside. The stock is trading below all major moving averages and within a descending trendline, indicating a bearish near-term and long-term outlook. Key support levels to watch are around A$38.70 to A$40.00, with significant resistance at A$41.00. If BHP breaches the A$38.70 support, the next key level could be as low as A$36.00, potentially revisiting levels seen in November 2022.

Telstra’s earnings boost but challenges remain

Telstra reported a 13% drop in full-year profit to A$1.8 billion, but the company lifted its dividend by 6%, which helped buoy its share price by 2.4% in morning trade. Despite the positive market reaction, concerns remain over Telstra’s profitability, with operating expenses rising and margins under pressure.

The company’s efforts to cut costs and increase prices have yet to fully materialise in its financial performance, but there is cautious optimism that these measures will bear fruit in the coming quarters.

Yen volatility and the USD/JPY outlook

The Japanese yen has experienced significant volatility in recent weeks, driven by the unwinding of the yen carry trade following the Bank of Japan's decision to raise interest rates. The USD/JPY (大口） pair is currently trading above 146, with technical indicators suggesting a potential short-term bullish trend.

However, over the medium to long term, the potential for further USD/JPY (大口） gains appears limited due to the narrowing interest rate differential between the US and Japan, which could see the pair settle back into a range between 130 and 140.