When it comes to ASX 200 investors, the big iron miners are some of the most popular shares around. ASX 200 iron ore shares like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) are also some of the largest public Australian companies.
What's more, most of these iron ore shares have been stellar performers on the ASX over the past couple of years. Rio, BHP and Fortescue have all outperformed the S&P/ASX 200 Index (ASX: XJO) since the start of 2022, as you can see below:
Performance of ASX 200 iron ore shares against the ASX 200 since January 2022
But just because miners are large and popular investments, and have outperformed the market in the past, doesn't mean they are automatically good buys today.
In fact, one expert reckons ASX investors should be avoiding ASX 200 iron ore shares right now.
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Stay away from ASX 200 iron ore shares: Expert
According to reporting in the Australian Financial Review (AFR) this week, Liberium Capital has predicted weakness across the iron ore sector going forward.
In a note to investors, Liberium said there was more weakness in major iron ore consumer China's ore-to-steel supply chain than at any time since 2012.
Liberium has identified five reasons why iron ore prices could remain under pressure going forward:
- Weak industry demand
- Inventory stocking in 2023 has concluded
- Steel production caps in China
- Efforts from Chinese authorities to 'check' price speculation
- A supply recovery from miners themselves.
How low might prices go?
Libereum sees a combination of these factors pulling down the iron ore price to US$89 per tonne in 2024, then US$85 per tonne in 2025 and finally to US$71 per tonne in 2026.
Right now, the industrial metal is going for almost US$104 per tonne.
If these scenarios came to pass, it would be obviously bad news for the earnings of BHP, Rio and Fortescue – and, by extension, their dividends.
The monstrous and unprecedented dividends that investors have enjoyed from ASX 200 iron ore shares over the past two years or so were fuelled by iron ore rocketing above US$200 a tonne back in 2021.
An iron ore price of US$71 wouldn't be a death knell for BHP, Rio or Fortescue, to be sure. These companies have had to deal with even lower iron prices in the past. But it would certainly dent their profits, dividends and (probably) share prices.
We'll have to wait and see what the global economy does for iron ore prices going forward. Commodity prices are notoriously difficult to predict, after all. But these projections from Liberium Capital warrant some consideration from ASX 200 iron ore share investors nonetheless.
