Are these ASX 200 mining shares in trouble?

China’s rapid growth has long helped support iron ore prices. Now Chinese property sales are tumbling.

| More on:
A Chinese investor sits in front of his laptop looking pensive and concerned about pandemic lockdowns which may impact ASX 200 iron ore share prices

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

  • ASX 200 mining shares have widely outperformed the benchmark over the past six months
  • The Chinese property development sector is wobbling
  • Property construction accounts for about 42% of Chinese steel demand

S&P/ASX 200 Index (ASX: XJO) mining shares have widely outperformed the benchmark over the past six months.

The reason, as you’re likely aware, is soaring commodity prices.

That’s helped propel the S&P/ASX 300 Metals & Mining Index (ASX: XMM) – which includes some smaller miners outside the ASX 200 – to a 31.82% gain over the past six months.

Over those same six months, the S&P/ASX 200 Index (ASX: XJO) gained 2.95%.

So, how did the big ASX 200 mining shares fare?

Miners make hay as iron ore rebounds

With iron ore rebounding from US$93 per tonne in early November to US$158 per tonne today, the Fortescue Metals Group Ltd (ASX: FMG) share price has gained 37.2% over six months.

Meanwhile, Rio Tinto Ltd (ASX: RIO) shares are up 19.8%, and BHP Group Ltd (ASX: BHP) has gained 39.5%. All since 1 October.

While the ASX 200 mining shares have revenue sources outside of iron ore (some more than others), the price of the industrial metal they dig from the ground does have a major impact on their share prices.

Which brings us to…

Are these ASX 200 mining shares in trouble?

Andreas Lundberg is the joint portfolio manager of The Montgomery Fund.

He’s concerned about the unravelling of China’s property development sector. This could usher in some serious headwinds for ASX 200 mining shares.

“[Property] sales in China are down close to 50% year-on-year in January and February. This does not bode well for demand for iron ore,” Lundberg points out. “And that’s bad news for our iron ore miners, as property construction accounts for about 42% of Chinese steel demand.”

Addressing the worsening financial woes of China Evergrande Group (HKG: 3333), Lundberg says, “Things are going from bad to worse for China’s second-largest property developer.”.

He continues:

Evergrande Group requested a trading halt and subsequently said they will not be able to produce an annual report before the deadline of 31 March as their auditors have imposed a lot of ‘additional audit procedures’ due to the deteriorating trading situation.

In his eyes, that means “auditors are not at all comfortable signing off the accounts as a going concern”.

And the troubles aren’t limited to China’s number two property developer.

“Evergrande’s woes are not an isolated case,” he says. “Signs of distress are starting to emerge at other Chinese developers too.”

According to Lundberg:

We are seeing more signs of distress in the Chinese property development sector. For example, last week Sunac China Holdings Ltd (HKG: 1918) proposed a delay in their upcoming Rmb 4.0 billion maturing bond repayment indicating they are also suffering cash flow issues.

So, are these ASX 200 mining shares in trouble?

“All in all, there is bad news for the Chinese property sector and by extension the seaborn iron ore market,” he says.

ASX 200 mining shares open strongly

For the time being, it’s looking like another positive day for ASX 200 mining shares. At the time of writing, the S&P/ASX 300 Metals & Mining Index is up 2.69%.

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 Bruce Jackson.

More on Resources Shares

Two excited mining workers in yellow high vis vests and hardhats shake hands to congratulate each other on a mineral discovery
Resources Shares

Worried about the iron ore price? Why the need for it ‘ain’t going anywhere’: broker

The iron ore price has slipped from about US$160 per tonne in March to just above US$100 per tonne today.

Read more »

Miner on his tablet next to a mine site.
Resources Shares

Global Lithium shares edged higher today amid ‘very promising’ results

What did Global Lithium announce to the market?

Read more »

A white EV car and an electric vehicle pump with green highlighted swirls representing ASX lithium shares
Resources Shares

Why is the Sayona Mining share price surging 8% on Friday?

The Federal Government is talking up the need for electric vehicles in Australia today.

Read more »

Two Firefinch miners dressed in hard hats and high vis gear standing at an outdoor mining site discussing a mineral find with one holding a rock and the other looking at at his ipad
Resources Shares

Could Porsche’s new test run threaten the outlook for ASX lithium shares?

Lithium miners and explorers have benefited from soaring lithium prices.

Read more »

A young woman looks at something on her laptop, wondering what will come next.
Resources Shares

Why did the Lake Resources share price pop and then stop on Friday?

The clean lithium developer soared 8% this morning before partially retreating. Here are the details.

Read more »

A green bubble or balloon bursts on a man's face.
Resources Shares

1 factor that could drag on Fortescue Future Industries’ green dream

There’s a major factor that could impact how well FFI can do.

Read more »

A boy is about to rocket from a copper-coloured field of hay into the sky.
Resources Shares

Guess which ASX copper share has exploded 182% this week?

This ASX copper share has risen 182% since last week alone...

Read more »

tradie holding a laptop computer displaying ASX share price and scratching his head looking confused
Broker Notes

Are Rio Tinto shares a buy? See what top brokers are saying

The miner's share price has struggled to make ground in recent months.

Read more »