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ASX falls amid resource stocks meltdown

A 5 per cent fall in heavyweight BHP Billiton led the broader market down. Photo: Peter BraigPoor overseas leads, weak economic news from China and crumbling commodity prices created a perfect storm for n mining and energy stocks on Tuesday, with a 5 per cent fall in heavyweight BHP Billiton leading the broader market down.

Commodity prices crashed overnight, with Brent crude oil falling over 5 per cent to $US40.70 per barrel, and iron ore dropping below $US40 per tonne – its lowest in 10 years – amid expectations Chinese demand will shrink next year.

In data released during the session, China’s exports fell for a fifth month and a slump in imports extended to a record 13 months as trade slows along with the world’s second-largest economy. November exports fell 3.7 per cent from a year earlier in yuan-denominated terms, while imports fell 5.6 per cent.

Led by a 6.35 per cent slide in the energy sector and a 3.4 per cent drop in materials, the benchmark S&P/ASX 200 index shed 0.9 per cent to 5108.6, and the broader All Ordinaries lost 0.9 per cent to 5158.0. Falls in other sectors were much more moderate and industrials, health care and telcos even posted small gains.

Credit Suisse analyst Damien Boey said the plunge in commodity prices was directly related to China’s economic performance.

“The data that’s come out of China has not been particularly good recently,” said Mr Boey. “And on top of that you’ve got the potential for a US Federal Reserve rate cut this month to make things worse.

“The way for China to grow is to create room to stimulate, and for that you need to devalue the exchange rate a bit more. And that’s the bad news which is haunting the commodities complex at the moment.

“The Chinese exchange rate is approaching fair value on the trade-weighted index but it’s not quite there yet.”

On a brighter note, business confidence rebounded in November and conditions remain above average, suggesting ‘s economic transition is on track, according to National Bank.

NAB’s latest monthly business survey found sentiment improved last month, after dipping in October. However, the 5 index points reached in November is still below the 6 points registered when Malcolm Turnbull rolled Tony Abbott in the September leadership spill.

The falls in commodity prices hit the big miners hard, with BHP plunging 5.2 per cent to $17.05 and Rio Tinto diving 4.3 per cent to $42.40. South32 shares plumbed a new low, caught up both in the resources rout and in speculation the miner is set to drop its London listing.

Shares crashed 8 per cent to $1.03, even underperforming former parent BHP’s loss.

Media reports cited “well-placed sources” in reporting that South32 is expected to dissolve its secondary London listing as early as mid-2016, with a lack of liquidity to slowly kill it off.

Crude oil tumbled to its lowest in nearly seven years in belated reaction to OPEC’s policy meeting on Friday which ended without an agreement to lower production.

The bearish mood among energy stocks was further worsened when Woodside Petroleum announced it had shelved its ambitions in relation to Oil Search.

Media reports said that Woodside chairman Michael Chaney had written to Oil Search’s board, formally notifying them that the company is no longer interested in progressing a merger.

All energy companies fell: Woodside 4 per cent to $26.89; Oil Search 16.4 per cent to $6.29; Origin 2.7 per cent to $4.98; Santos, 13.1 per cent to $3.31; Caltex 0.7 per cent to $33.80; Beach 5.4 per cent to 44 cents; and LNG 11.5 per cent to 99.5 cents.

Mining services group Orica fell 3.6 per cent to $15.02 after a ruling that it set up a $900 million tax avoidance scheme to help inflate its share price, Justice Tony Pagone found in a judgment in the Federal Court in Melbourne on Monday.

Orica is facing a tax bill of close to $50 million including interest and penalties for the scheme which operated from 2002 to 2006.

Orica said the after-tax cost of the loss would be $36 million.

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