The Anglo American (LON: AAL) share price lost momentum sharply last week as investors focused on the collapsing iron ore prices. The stock ended the week at 2,590p, which was the lowest level since July 20th. It has declined by more than 20% from its highest level this year.
Iron ore prices collapse
Anglo American is one of the biggest mining conglomerates in the world, with a combined market capitalisation of more than 35 billion pounds.
The company makes most of its revenue by mining and trading commodities like iron ore, copper, diamonds, coal, nickel, and platinum group metals. Most of its revenue comes from its iron ore business.
The Anglo American share price collapsed into bear territory last week after a sharp decline in iron ore prices. An asset moves into bear territory after falling by about 20% from its highest level.
The price dropped by more than 20% last week, the biggest drop since 2008, at the height of the Global Financial crisis. A
There are several reasons why iron ore prices have collapsed. First, there is the ongoing Evergrande crisis in China. The company, which is the second-biggest property developer in the country, has struggled paying its debt. It now risks going bankrupt if it cannot be bailed out by the government.
As a result, many Chinese banks have started to reassess their lending to property developers, which could affect demand for iron ore.
The Chinese government has also capped the total amount of steel that companies can produce to 1 billion tons. Therefore, many steel mills have started selling most of their inventories to take advantage of relatively higher prices.
Therefore, the Anglo American share price has fallen as investors reassess their forecast for the company’s earnings. In a note, an analyst at UBS said:
“Iron ore supply has been broadly stable in 2021 but will lift over the next few months if Vale and Rio Tinto are able to achieve their 2021 guidance. This will result in a material build [up] in iron ore inventories at Chinese ports and a sharper fall in iron ore prices over the next six months than previously expected.”
Other metals like Palladium, copper, and nickel have also declined recently.
Anglo American share price forecast
The daily chart shows that the AAL share price is at an important level. The closing price on Friday was slightly above the neckline of the previous double-top pattern. In price action analysis, a double-top pattern is usually a bearish signal.
It has also moved below the 25-day and 50-day moving average, signalling that bears are in control. Therefore, the stock will likely drop to the 50% retracement level at 2,110p, which is about 20% below the current level.
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