China’s latest attempt to stimulate economic growth cannot come fast for Australia’s iron ore industry where second tier miners are being rocked by the falling price of the steel making mineral which is sitting close to a six-year low.
Over the past month, the price of iron ore traded on the Singapore Exchange has declined by 7% to $100.15 a ton (and briefly dropped below $100/t on Monday), to now be down 28% on the price of $140/t at this time last year.
The falling iron ore price is the major factor in a 16% drop in the share price of Fortescue Metals over the past month with the stock touching a six-month low earlier today of A$15.91.
Mineral Resources, another producer of second grade ore, which has also been hit by management instability, has suffered a 40% share price drop over the past month, and 67% over the past 12 months.
Bigger miners producing higher grade ore, including BHP and Rio Tinto, have not been hit as hard with earnings protection also coming from the production of other commodities, including copper, coal, and aluminum.
Tariffs Start To Bite
Fortescue and Mineral Resources are fully exposed to the weakening iron price which is a function of slowing Chinese steel output as domestic demand falters and export markets tighten, especially into the U.S. which is applying high (and rising) tariffs on Chinese goods.
Investors have grown wary of miners producing material below the benchmark of 62% iron content, applying a hefty discount, which can be magnified by quality issues such as impurities in the ore.
Hopes of meaningful stimulus of the Chinese economy have been raised by plans unveiled at this week’s meeting of the National People’s Congress (NPC), a rubber-stamp parliament which has been discussing an increase in loans for local government to fund infrastructure projects which often have a high steel content.
But steps China takes on the domestic front will be undone in the export market as a tit-for-tat exchange of tariffs point to a wider and deeper trade war.
S&P Gobal, a financial market research house, said in its metal price outlook for 2025 that iron ore prices are “entering a period of continuous decline given faltering demand in China and growing oversupply”.
Chinese iron ore imports are expected to fall by 35 million tons this year compared with 2024. That decline is likely to occur as new mines, such as Simandou in Guinea, come online and existing high-grade mines expand production, heaping pressure on the second-tier operators.
Iron Ore Price At Six-Year Low
S&P said iron ore was facing a structural downturn with the price of ore containing 62% iron forecast to average $98/t this year, a six-year low.
“Although fiscal expansion signalled by Beijing might temporarily benefit infrastructure and manufacturing, sectors that typically consume steel, the impact on the persistently sluggish recovery in the domestic property sector is likely to be short lived and insufficient to mitigate the downward pressure on iron or prices,” S&P said.
“We anticipate higher mine output in Australia and Brazil in 2025, along with the potential start-up of the Simandou project in Guinea, the largest greenfield high-grade iron ore project.
“This is expected to shift the global seaborne trade balance into a surplus in 2025, putting downward pressure on iron ore prices.”
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