ASX miners on edge as investors ask how low can the iron ore price go?

The major ASX mining shares are on edge as investors fret over how much lower the iron ore price could…
The post ASX miners on edge as investors ask how low can the iron ore price go? appeared first on The Motley Fool Australia. –

The major ASX mining shares are on edge as investors fret over how much lower the iron ore price could sink.

The price of the steel making commodity continues to slump from its record high of over US$230 a tonne to around US$190 a tonne.

Some experts believe the iron ore price won’t be trading over US$200 again – not in this cycle, reported the Australian Financial Review.

ASX mining shares underperform again

This explains why the big ASX mining shares have lagged yet again. The BHP Group Ltd (ASX: BHP) share price tumbled 2.4% to $46.35 and Rio Tinto Limited (ASX: RIO) share price lost 2.2% to $118.74.

The Fortescue Metals Group Limited (ASX: FMG) share price fell by a similar magnitude to $21.22 too.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) shed a more modest 0.3% at the close of trade today.

Why iron ore prices have fallen from record high

The iron-fisted clampdown by Chinese authorities on commodity speculators and hoarders is driving the downtrend.

The AFR reported that the National Development and Reform Commission said China would show no tolerance for monopoly behaviour.

And we all know China follows through on its threat. Just ask Ant Group Co.’s Jack Ma whose IPO dream was shattered earlier this year.

Iron ore price set to weaken further

It isn’t only China’s crackdown that’s weighing. There is also speculation that steel prices have shot up too high and will correct. The high steel price is dragging the iron ore price higher as the latter is needed for steel.

The question for ASX investors now is where will the iron-ore sell-off end? Credit Suisse doesn’t think we have seen the worst of the falls, although investors shouldn’t be alarmed. I’ll explain why later.

The broker warned that the iron ore price will continue to soften into the second half of this calendar year.

Softening prices still signal a profit upgrade

“Construction accounts for about 60% of China steel use and potentially over 80% if machinery is added,” said Credit Suisse.

“Our iron ore price forecasts of Jan, were based on a premise of firm demand for property and infrastructure in 1H-21, potentially fading into 2H.

“But we missed the strength of manufacturing FAI [First Article Inspection] (factories), recovering from the Trump trade war.”

So, while the broker believes the iron ore price has further to fall this year, it reckons it will still hold around US$160 a tonne on average.

Why this isn’t bad news for ASX mining shares

That’s around US$20 to US$30 above its previous forecast and an upgrade is in order for the sector.

The same would be true for most other brokers as their price forecasts are closer to US$100 a tonne than US$200 a tonne.

The iron ore price may be well off its record high and may not be revisiting its peak anytime soon. But ASX miners will still be making a lot of profit.

Remember that Credit Suisse’s price estimate is close to iron ore’s previous peak of circa US$180 a tonne back in the 2011 supercycle.

Now isn’t the time to turn bearish on ASX iron ore shares.

Learn where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be thefive best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

More reading

Up then down, what’s with the Fortescue (ASX:FMG) share price?
Here’s why gold shares are up on the ASX 200 today

ASX 200 up 0.2%: CBA share price cracks $100, ALS result impresses

Top brokers name 3 ASX shares to buy today

Broker forecasts massive dividends from Fortescue (ASX:FMG) shares

The post ASX miners on edge as investors ask how low can the iron ore price go? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!