Should I buy ASX mining shares now or not?

Is it a mistake to buy miners in 2023?

| More on:
A man wearing a hard hat and high visibility vest looks out over a vast plain.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The ASX 200 had a tough year last year
  • But ASX mining shares took up the slack
  • But after a lucrative 2022, is 2023 too late to buy?

ASX mining shares were some of the standout performers over what was a tough year in 2022. While the S&P/ASX 200 Index (ASX: XJO) went backwards by 5.5% last year, many ASX mining shares smashed that loss.

Take the BHP Group Ltd (ASX: BHP) share price. BHP is the largest mining company on the ASX. BHP shares rose by a healthy 9.95% last year. Add on BHP's impressive dividends in 2022, and we get a return that could be double that (depending on what price you bought the shares for).

It wasn't just BHP though. Fortescue Metals Group Limited (ASX: FMG) shares rose by more than 6.7%, which were also juiced up by monster dividends.

Rio Tinto Limited (ASX: RIO) shares were up more than 16% as well, while coal miner Whitehaven Coal Ltd (ASX: WHC), while technically an ASX 200 energy share, rocketed an extraordinary 185%.

As such, it was a fantastic year to own most ASX mining shares in 2022.

But that doesn't mean it's automatically a good idea to keep owning these companies in 2023. So today, let's discuss whether or not we should be buying ASX mining shares.

The problem with miners

Mining shares are a rather unique beat in the investing world. Most companies have a lot of control when it comes to what they sell their goods and services for. For example, if Woolworths Group Ltd (ASX: WOW) wanted to boost its profits, it could quite easily boost its supermarket prices almost instantly.

But miners don't run that way. They are forced to accept whatever price the international market sets their chosen commodity at. If iron ore is going for US$100 per tonne, BHP can't go to a buyer and tell them they are charging US$150 per tonne.

The only control miners generally have over their products is how much it costs them to extract said products.

As such, miners are hostages to the whims of the global commodity markets.

This can be great at times, of course. Miners had such a strong 2022 because commodity prices surged last year.

Wars, inflation and supply chain bottlenecks all combined to push up oil, iron ore, copper, gas and coal to very expensive levels. That's why some of these companies were making money hand over fist in 2022.

But what of 2023?

Is 2023 the year to buy ASX mining shares?

Well, my philosophy when it comes to miners is very simple. They are inherently cyclical businesses. Therefore, they will not steadily compound your wealth the same way a well-run company in another sector might.

So it only really makes sense to buy a miner at the bottom of a commodity cycle. In 2021, iron ore was at record highs of over US$200 per tonne. But the price has come down significantly. As of today, this base metal is asking just over US$123 per tonne.

But this is certainly not even close to the lower bounds iron ore has plummeted in the past. In 2016, for example, iron ore was under US$50 a tonne.

Iron ore could well bounce back to above US$200 a tonne in 2023. But it could also go back to below US$50. I have no idea which way it's going to go, nor do most investors.

As such, I see investing in miners now as not being too different to deciding between red or black at the roulette table. I'm an investor, not a gambler. So I'll be staying away from miners in 2023 until I'm reasonably confident a commodity only has one way to go – up.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

Female miner smiling at a mine site.
Resources Shares

Up 60% this year, this ASX 200 mining stock just smashed production records

Production surge headlines quarterly results.

Read more »

a man in a hard hat and high visibility vest smiles as he stands in the foreground of heavy mining equipment on a mine site.
Resources Shares

After lifting its price target, Macquarie now expects 36% upside from this ASX mining stock

The precious metals producer released better-than-expected production guidance.

Read more »

A miner in a hardhat and high visibility clothing makes a thumbs up symbol.
Resources Shares

4 reasons to buy Rio Tinto shares today

A leading expert forecasts strong growth potential for Rio Tinto shares.

Read more »

Man with rocket wings which have flames coming out of them.
Resources Shares

Why Macquarie expects this ASX All Ords copper stock could surge 38%

With costs coming in below expectations, this ASX All Ords copper stock could rocket higher over the coming months.

Read more »

Iron ore price Vale dam collapse ASX shares iron ore, iron ore australia, iron ore price, commodity price,
Resources Shares

Major miners up as China announces new mega project

Can a new mega-dam absorb iron ore oversupply?

Read more »

A young man sits at his desk with a laptop and documents with a gas heater visible behind him as though he is considering the information in front of him. about the BHP share price
Broker Notes

Leading broker has just downgraded BHP shares. Is it time to sell?

Macquarie sees little upside. But why?

Read more »

A young woman wearing a blue blouse with white polkadots holds her phone up with an intrigued and happy look on her face as she reads some news.
Resources Shares

3 reasons why the BHP share price could be a buy

Here are my optimistic thoughts on BHP.

Read more »

mining asx shares represented by miner writing report on clipboard
Resources Shares

This ASX 200 miner is ramping up copper output as prices reach all-time highs

Copper production leads quarterly update.

Read more »