The iron ore price continues to face downward pressure this month, with Bank of America, the latest broker, warning it could dip below $US80 per tonne.
This forecast has significant implications for ASX-listed iron ore heavyweights like BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), Mineral Resources Ltd (ASX: MIN) and Fortescue Ltd (ASX: FMG).
See the current share prices for each of these stocks below:
- BHP at $40.03
- Rio Tinto at $113.10
- Fortescue at $17.68
- Mineral Resources at $37.58
Meanwhile, the iron ore price has dipped from a high of US$144 per tonne in January to US$91.98 per tonne at the time of writing.
If it continues to slide below US$80 per tonne, how will this impact the iron ore majors? Let's see what the experts think.
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Iron ore price set to dip below $US80?
Bank of America is the latest broker to warn that the iron ore price"may fall" below $US80 a tonne. According to The Australian Financial Review, strategist Michael Widmer said prices could drop to this level to "stop miners adding supply" or remove higher cost operations from the market.
This sentiment is echoed by Commonwealth Bank of Australia (ASX: CBA), which believes iron ore hitting $US80 is "not too far from current reality.
The primary driver behind this decline is weak demand in China.
A major consumer of steel, China's construction industry has seen a downturn in new starts, contributing to weaker demand for iron ore.
Iron ore – combined with Nickel – is the major ingredient required to make steel.
While some Chinese mills have reduced output, according to Bank of America, rising iron ore exports from Brazil and Australia have offset this, creating a surplus.
The broker says the market could see a surplus of 190 million tonnes next year–equal to 7.5% of the total supply. This could impact the iron ore price.
Despite the gloomy outlook, some analysts hope for relief from China. Commonwealth Bank analysts anticipate an infrastructure spending package to be announced in the fourth quarter, which could stabilise prices.
Similarly, Westpac expects Chinese authorities to take measures to prop up economic growth, though they caution that a full recovery to the 5% growth target may be unlikely, per The AFR.
What's the impact on ASX iron ore shares?
The potential fall in the iron ore price could spell trouble for ASX iron ore miners. While BHP and Rio Tinto have break-even prices of around $US45 per tonne, Fortescue's break-even is higher, at around $US64 per tonne.
Mineral Resources has an even higher break-even point above $US80 per tonne, according to The Australian Broadcasting Corporation.
So a price drop to $US80 could squeeze Mineral Resources' and Fortescue's margins significantly – but it wouldn't leave BHP or Rio Tinto out of the lurch either.
And while these miners have diversified operations, iron ore makes up a key portion of their income. For instance, in 2024, iron ore revenues made up approximately 50% of BHP's top line.
Brazilian mining giant Vale also made the recent decision to increase iron ore production. For many, this raises concerns about adding to oversupply.
If the market experiences both softer demand from China, and increased supply from major producers, iron ore could remain under pressure. This could impact the profits of these companies.
Foolish takeaway
With the iron ore price under pressure due to weak demand and strong supply, the Aussie iron ore majors are in focus.
If prices do drop further, to US$80 or below as some are projecting, it is likely to impact the profits of these companies. Mineral Resources might be the most impacted, given its higher breakeven price.
Time will tell what level the iron ore price gets to.
