Rio Tinto Ltd (ASX: RIO) and BHP Group Ltd (ASX: BHP) shares extended losses on Friday, both marking fresh year-to-date lows as iron ore prices crater under weak Chinese demand.
BHP shares tumbled 3.67% on Friday, trading at levels not seen since 2 December 2020. The selloff was on the back of heavy volume, with 18.86 million shares trading hands compared to its 10-day average of just 9 million.
Iron ore sent to the doghouse
Iron ore prices fell below US$100 a tonne for the first time in 14 months as Chinese demand struggles to pick up amid a recent focus on emissions targets and weak growth out of its key property and infrastructure sectors.
But perhaps what's intriguing is that iron ore's rapid deterioration is happening in isolation. Commodities, more broadly speaking, are holding up relatively well.
The Australian Financial Review (AFR) reported commentary from head of investment strategy at AMP Capital, Shane Oliver, who said "often we see commodities all move together, but at the moment, iron ore seems to be the exception which is making it a lot harder for companies that solely rely on it."
"It makes sense to take positions in miners that have a more diversified exposure that will benefit from higher prices elsewhere including coal, gas and copper," he added.
Making the switch from Rio to BHP shares
According to the AFR, SG Hiscock's Australian equities fund reiterated this view, swapping Rio Tinto for BHP shares last month.
The fund pivoted into BHP for its "better leverage to soft commodities production through potash" and "future-facing commodities through its nickel business."
Portfolio Manager at SG Hiscock Hamish Tadgell said:
While iron ore has done extremely well and is still very well positioned from a global perspective where supply-side constraints still exist, we see demand coming off a bit and we're putting our money to work in areas we see better opportunities.
