S&P/ASX 200 Index (ASX: XJO) mining stocks could be about to receive an early Christmas, courtesy of China.
And the big mining shares have enjoyed a tremendous run in June already.
Here's how the top ASX 200 mining stocks have performed since the closing bell on 1 June.
- Rio Tinto Ltd (ASX: RIO) shares are up 8.8%
- BHP Group Ltd (ASX: BHP) shares are up 10.1%
- Fortescue Metals Group Ltd (ASX: FMG) shares are up 14.8%
So, why such a strong run from the miners? And how might China help the charge higher continue?
Are ASX 200 mining stocks set for some fresh tailwinds?
ASX 200 mining stocks came under pressure in April as prices for copper and iron ore fell hard.
By 31 May, the iron ore price was down to US$100 per tonne. Copper had fallen to US$8,089 per tonne.
Despite some dour forecasts linked to the slowing global economy, both industrial metals have been leaping higher since then.
Iron ore gained another 0.8% overnight and is now trading for US$113.30 per tonne, up 13% in June.
The copper price has rebounded to US$8,558 per tonne, up 6% in June.
And much of this boost comes thanks to China's own flagging economy, with its commodity-hungry property sector struggling to rebound post the COVID lockdowns.
This could boost ASX 200 mining stocks for the old 'good news is bad news' reason.
That's right, we're talking stimulus folks.
As most of the world is tightening, China looks set to unleash some major growth incentives to spur its sluggish economy. This could potentially see a big uptick in the Middle Kingdom's demand for commodities like iron ore and copper. Indeed, it already looks to have offered a significant price boost this month.
What kind of stimulus is China rolling out?
Yesterday the People's Bank of China (PBoC) cut one-year rates by 0.10%. This came on the heels of modest rate cuts on other short-term loans Wednesday.
And most analysts expect there will be more stimulus measures announced by the government over the coming days to help spur household consumption and the construction industry.
Chen Xi is a fixed-income analyst at Kaiyuan Securities.
According to Xi (quoted by The Australian Financial Review), "There is a high probability that there will be follow-up measures such as loosening credit and loosening finances, and these are all good for the economy."
More growth in China's economy will equate to greater demand for commodities, which would offer ASX 200 mining stocks some further welcome tailwinds.
Goldman Sachs economists also forecast more Chinese government stimulus:
We expect more [targeted] easing measures in coming months, especially on fiscal and housing, to counteract the persistent weakness in the economy, although the magnitude of stimulus should be smaller than in previous easing cycles.
Sounding a note of caution, Gary Ng, senior economist at Natixis, warned that stimulus was no silver bullet.
According to Ng (courtesy of Bloomberg):
The biggest question is the general sentiment — households are saving more, and corporations are not investing as much, because they are not certain about the future. Even if the central bank adopts more lax monetary policy now, it may not be too successful, because it ultimately depends on the general sentiments.
So, will ASX 200 mining stocks get that early Christmas present?
It certainly looks like Chinese policymakers will roll out further stimulus. If household and consumer sentiment tick up in response, we may well hear sleigh bells ringing into July.
