Heavy-Going For Metal Miners

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What's going on?

The price of iron ore, the key component in steel, has dropped 20% over the past week. The big fall is sending the stock prices of miners sharply lower and, if it continues, will likely have an impact on the rest of us.

What does this mean?

The prices of iron ore and other industrial metals, like copper, ripped higher earlier this year, which continued a rebound that began about 15 months ago after demand from within China increased. Previously prices had been languishing at their lowest level in more than a decade. But it seems that China is now oversupplied, which is helping send prices sharply lower. News on Wednesday that Chinas government is taking action to slow housing construction, which requires a whole load of copper and steel, contributed to the drop.

Why should I care?

For the markets: Lower metals prices have brought down miners stocks.

Big mining companies like Rio Tinto, BHP Billiton and Glencore have seen their stock prices fall about 5% this week. Part of the pressure comes from the wider stock market selloff, but mining stocks are also clearly reacting to the price of their products falling. The good news for (most) miners is that both their share prices and the price of the metals they mine are still higher than at any time last year.


For you personally: The price of raw materials has a big impact on inflation.

While the higher price of oil is often discussed as one of the main drivers of the recent increase in inflation, price rises for industrial metals have also had a big impact. As the cost of raw materials rises, so too does the cost of producing goods as it has over the past year. This means a continued drop in metals prices would likely put a damper on inflation globally in the coming months.

Originally posted as part of the Finimize daily email.

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