ASX mining shares have underperformed the broader market in 2024. Iron ore has been particularly impacted.
The glory days of sky-high iron ore prices may be behind us, and Australia's mining giants – BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), Mineral Resources Ltd (ASX: MIN), and of course, Fortescue Ltd (ASX: FMG) – are now feeling the pinch.
As iron ore prices continue to tumble, these mining companies must adapt to maintain profitability. So, what does this mean for ASX mining shares? Let's see.
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Twiggy says the easy ride is over
ASX mining shares might be in for a shock if Fortescue's Executive Chairman, Andrew 'Twiggy' Forrest, is correct.
Twiggy didn't mince words when speaking to The Australian Financial Review this week, saying that miners can no longer simply coast along on high iron ore prices.
The mining billionaire said the industry's players are "all heroes" when iron ore prices are fetching high prices, but alas, times have changed.
You can be fat, dumb, and happy and do nothing [when prices are high], but when prices fall, you've actually got to work for a living.
Iron ore prices have fallen sharply this year, currently fetching US$92.25 per tonne, down from US$144 per tonne in January.
Bank of America analysts suspect a case where iron ore sells at US$80 a tonne, creating headwinds for ASX mining shares like BHP, Rio Tinto and Fortescue, whose break-even prices range from US$45–$64 per tonne.
Mineral Resources' break-even, meanwhile, is reportedly US$80 per tonne on the nose.
Fortescue has taken a proactive step to reduce operating costs by securing a deal with German-Swiss manufacturer Liebherr to deliver nearly 500 mining vehicles producing no emissions.
The plan is to save big time on fuel costs, which add up to operating expenses (OpEx). Per the AFR:
We're not buying a billion litres of diesel a year. If you add that up, that's a huge cost, which is going to leave our OPEX.
Time will tell what impact this has on the broader group of ASX mining shares.
Chinese economic stimulus
Another driving force behind recent movements in ASX mining shares is China's fiscal and economic stimulus measures.
China – the world's largest iron ore consumer – has rolled out initiatives like cutting mortgage rates and lowering banks' reserve requirements.
These moves are aimed at stabilising China's economy, which has been grappling with lower demand for steel and commodities.
The effects of this stimulus have been positive for ASX mining shares, with each of the iron ore majors in the green this past week of trade.
Bell Potter summed it up well, saying the measures "were a big shock to the market, blindsiding many who were shorting resource names".
ASX mining shares takeaway
The 'fat, dumb, and happy' days are over for ASX mining shares, according to Fortescue's Twiggy Forrest.
But markets move in cycles, and time will tell what the next cycle will look like and when it will be.
For the time being, investors may have to be a little more diligent in the ASX mining space.
