After reaching a four-and-a-half year high of 5,112 last week, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) fell 75.6 points (1.5%) in yesterday's trading, with mining heavyweights BHP Billiton (ASX: BHP), Fortescue Metals Group (ASX: FMG), and Rio Tinto (ASX: RIO) leading the way – all falling over 3%.
Announcements made in China over the weekend spooked investors, with predictions that iron ore will drop below $US60 a tonne from $US150, according to the Financial Review.
Furthermore, demand for steel could also be greatly affected in the future, amongst suggestions that investments in the Chinese property sector will become restrained.
Companies such as Arrium Limited (ASX: ARI) (formerly Onesteel) which manufacture products for a range of applications in manufacturing, construction, mining, and automotive have been dealt many lethal blows over recent years.
Both directly and indirectly affected by a decrease in demand for iron ore, Arrium has reported a net loss of $447.2m for the half-year ended 31 December 2012. Their share price has reflected declining market conditions dropping from a high of $7.50 mid 2008 to its current market value of $1.12, having rebounded from a low of $0.50 in September 2012.
Yesterday, the index was further affected by falling stock prices of many companies due to ex-dividend status. This is not uncommon, as market value of shares will retreat during this time by around the amount of the dividend to be paid.
The market recovered today, up 72 points in mid-afternoon trading.
Foolish takeaway
While the economic growth in China has, for years, boosted our economy, many investors have experienced fantastic portfolio growth. By lowering demand for our commodities however, the S&P/ASX 200 could be greatly affected in years to come. Inflationary signs in China over the coming months could reveal to investors how our mining heavyweights will deal with this decrease in international demand.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
