In positive news for the iron ore price, China has announced stimulus aimed at boosting its weakening housing market.
Chinese officials introduced three measures that should attract more buyers to property. The minimum deposit on a second home has been slashed from 60% to 40%, taxes will no longer be charged when selling a property owned for more than two years and restrictions on buying apartments using retirement savings have been relaxed.
The iron ore price has been battered over the past year, falling from US$110 per tonne to just US$50 per tonne as major iron ore producers ramped up production, Chinese economic growth softened and the USD rose.
As a result, any actions that may increase demand will be welcomed by Australian producers such as BHP Billiton Limited (ASX:BHP), Rio Tinto Limited (ASX:RIO), Fortescue Metals Group Limited (ASX:FMG) and Atlas Iron Limited (ASX:AGO).
The results of the stimulus would need to be significant to arrest the marked decline in the property market that has seen new apartments under construction falling 20% from a year earlier and total residential property sold also falling. There are hopes of additional stimulus, but analysts at JP Morgan still believe that real estate investment growth will fall from 10.5% last year to 6% for 2015.
If the stimulus is effective and iron ore prices stabilise, or even rise, it is likely to be shareholders of the smaller, higher cost miners that benefit the most.
Fortescue recently declared that its cost of production was $52 per tonne. Therefore any price increases will enable the company to report profits for the year. Likewise, Atlas Iron is currently producing at a loss, with their cost of production between $60 and $63 per tonne.
Atlas shareholders will be banking on the commodity's price increasing to fuel a rise in the value of their shares. Even though BHP & Rio are comfortably producing at a profit at current prices, while making changes that will enable them to reduce cost of production to $15 per tonne, they too will welcome any increase in the price of iron ore.
Despite China's announcements beings an overall positive for the price of iron ore, it would be a brave tipster that calls the bottom of the cycle now.
