The most recent peak in the iron ore price was in March at about US$160 per tonne. Since then, the commodity's value has fallen in a very jagged line to trade just above US$100 per tonne today.
As is usual, the major ASX mining shares have fallen alongside the iron ore price.
Since March, the BHP Group Ltd (ASX: BHP) share price has dropped 17.5%. Rio Tinto Limited (ASX: RIO) shares have fallen 22%. The Fortescue Metals Group Limited (ASX: FMG) share price has lost 1.3%.
Analysts at Trading Economics forecast iron ore to trade at about US$109 by the end of the September 2022 quarter. In a year's time, the team expects the iron ore price to be about US$97 per tonne.
But Saxo Bank country head of direct sales, David Harvie, isn't worried. Harvie says China's demand for iron ore is a long-term trend given the country's ongoing industrialisation. He reckons it's only a matter of time before the world's largest consumer of iron ore begins chewing it up at a strong pace again.
Broker says China will 'fire up again'
In an interview with The Motley Fool, Harvie said:
When we talk to our China strategists and when we talk to our APEC strategists, I think they make a really valid point. And the point would be it's not if, but when the largest consumer of iron ore in the world fires up again, being China.
Building cities the size of Brisbane once a month, or whatever they're doing over there, that ain't going anywhere either. Our house theory is that it is a demand question, and that should be satisfied by virtue of some of those large economies kicking off again.
ANZ reckons the iron ore price has 'limited upside'
ANZ commodity strategists Daniel Hynes and Soni Kumari provided their view on the iron ore price in a note released yesterday.
Hynes and Kumari wrote:
We see limited upside in iron ore prices. A stabilisation in the Chinese property market should support sentiment and prices through Q3 and into year end. We expect prices to trend lower in Q4 and into 2023 as the impact of China's stimulus measures peters out and iron ore demand weakens. We ultimately see prices at the end of 2023 sitting under USD100/t as the market tightness eases.
China's shadow over commodity markets remains large. That raises the risk that weak economic data will create increasing headwinds for the sector. Those perceived risks don't completely reflect what we are seeing on the ground.
Stimulus measures announced earlier this year raised hopes that commodity demand would rebound strongly in H2 2022. However, China's credit impulse is slowing again in response to the restrictions involved in its zero-COVID strategy. This is normally a signal of weaker demand for commodities, but the relationship may not be as straightforward as it was in the past.
What's next for the big three ASX mining shares?
BHP impressed the market with its full-year FY22 results this week.
BHP reported a 16% increase in its underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to a record US$40,634 million.
The Big Australian will pay a US$1.75 per share final dividend.
Rio Tinto reported its half-year results on 28 July.
Fortescue is the only company out of the big three ASX mining shares yet to report this earnings season. It is scheduled to report its FY22 figures on Monday 29 August.
