Several popular ASX mining shares are set to fall even as the market is predicted to open firmly in the black this morning.
The futures market is pricing in a 0.7% jump in the S&P/ASX 200 Index (Index:^AXJO). This is thanks to positive leads from Wall Street over the weekend.
But mining heavyweights like the BHP Group Ltd (ASX: BHP) share price, Rio Tinto Limited (ASX: RIO) share price and Fortescue Metals Group Limited (ASX: FMG) have not been invited to the party.
Iron ore price crash
This is because the Fastmarkets MB iron ore price crashed 12.1% to US$208.79 a tonne on Friday, reported the Australian Financial Review.
The big sell-off comes on reports that Chinese regulators are clamping down on raging prices after the commodity hit a record high of US$237.57 a tonne on Wednesday.
The BHP share price and Rio Tinto share price on the London Stock Exchange dived 1.3% and 2.8%, respectively. The ASX prices for these mining giants are likely to follow in sympathy.
China trying to derail iron ore's record bull run
Chinese authorities in steel producing cities of Shanghai and Tangshan warned steel mills "against price gouging, collusion and spreading false market information".
Some experts believe the iron ore price was set to pullback even without the intervention of the Chinese government. The price of the steel-making ingredient has been rocketing and a period of consolidation is to be expected.
But the jawboning by China has certainly exacerbated the fall. No one has any doubt that the authorities there will wield a big stick to ensure compliance.
Price increases "forbidden"
The Shanghai market regulator said in a statement on Friday forbidding steel producers to increase prices significantly unless it was due to a big rise in production costs.
The high price of steel is one major tailwind for the strong iron ore price increase. If steel mills can make solid profit margins, they would be happy to chase the iron ore price higher.
Ironically, the Chinese Community Party has a part to play in the iron ore windfall that they are trying desperately to quell.
ASX mining shares benefitting from China-Australian tensions
One of the other reasons for the mineral's bull run is fear that China would ban the import of Australian iron ore – just as it's done with coal, wine, barley and a host of other Aussie exports.
The big question now for investors is whether this marks the end of the iron ore bull run. Some experts believe that the iron ore price has peaked this cycle, while others think this is only the start of a supercycle.
Have iron ore prices peaked?
The bulls point to a drop in iron ore inventories at Chinese ports. The Mysteel's weekly survey of 45 ports showed that inventory dropped for the third week to a three-month low of 125.3 million tonnes on May 13.
OCBC economist Howie Lee predicting that the iron ore price will test US$250 a tonne in the next 12 to 18 months.
"China's new infrastructure projects have been estimated to total 10 to 20 trillion RMB from 2021 to 2025, which means the demand for raw materials now is only just beginning," The AFR quoted Mr Lee as saying.
ASX mining shares set for a profit upgrade
Regardless of whether the bulls are right, ASX mining shares are set for profit upgrades unless iron ore crashed by more than 50% from here.
Most analysts have only assumed a price or US$100/tonne or less in their valuation calculation for ASX miners.
