Iron Ore Miners Face Tough Times

The iron ore market is experiencing a rough patch, with prices dropping significantly this year. After starting off strong at over US$140 per tonne, it’s now sitting around US$100 per tonne. Experts are noting that the sector is facing weak fundamentals, especially with the construction industry in China showing little signs of recovery.

Supply from major players like Fortescue Ltd, BHP Group Ltd, and Rio Tinto Ltd is increasing, which adds to the pressure on prices. Recently, the Australian Financial Review reported comments from Baowu, the world’s largest steelmaker owned by the Chinese government. Their chair, Hu Wangming, warned that the steel industry is in for what he calls a ‘long and harsh winter.’

Wangming emphasized that during this tough time, having cash on hand is more important than making a profit, urging financial departments to prioritize securing funding.

Despite these challenges, some believe it might be the right time to consider investing in Australian iron ore shares. It’s been noted that this isn’t the first time iron ore prices have dipped to US$100 per tonne; we’ve seen similar situations in late 2021 and even in 2022.

While there are no clear signs of improvement for the iron ore prices in the next year, the declining share prices of companies like BHP and Rio Tinto—22% and 19% down, respectively—raise some eyebrows. Large drops like this don’t happen without a reason, and investors are understandably concerned.

However, there could be a silver lining. Both BHP and Rio Tinto are making significant investments in copper, a commodity that seems to have a bright future thanks to electrification trends. This diversification might help reduce their reliance on the shaky Chinese iron ore demand.

Fortescue, on the other hand, lacks this copper exposure and recently decided to slow down its green energy efforts, leading to lower optimism about its future performance.

Another factor to consider is the potential for interest rate cuts in the U.S., Australia, and other countries, which could increase overall economic activity and, in turn, boost steel demand. Among these companies, Rio Tinto stands out due to its involvement in a massive copper project in Africa, which could provide geographic diversification and valuable earnings regardless of fluctuations in iron ore prices.