The iron ore price dipped again overnight, with futures falling 1.1% to US$99.90 per tonne.
That looks to be throwing up some headwinds for the S&P/ASX 200 Index (ASX: XJO) mining giants.
Here's how they're tracking at the time of writing on Wednesday:
- BHP Group Ltd (ASX: BHP) shares are down 0.2%
- Rio Tinto Ltd (ASX: RIO) shares are down 0.6%
- Fortescue Metals Group Ltd (ASX: FMG) shares are down 0.3%
For some context, the ASX 200 is up 0.1% at this same time.
What's happening with the iron ore price?
Iron ore represents the biggest revenue earner for BHP, Rio Tinto and Fortescue.
So it pays to keep an eye on the outlook for the industrial metal.
After falling to just over US$80 per tonne in November last year, the iron ore price rebounded to around US$134 per tonne in mid-March. That boost came amid optimism over China's reopening, with expectations this would see an increase in steel production and hence iron ore demand.
However, the Chinese economy has not delivered on that expected growth, with its steel-hungry real estate sector in the doldrums. And with the Chinese government dragging its heels on rolling out any significant stimulus measures, the outlook for steel production from the Middle Kingdom has slumped.
This has seen the iron ore price slump 14% since 26 July.
What's Goldman Sachs forecasting?
In unfortunate news for the ASX 200 miners, Goldman Sachs is forecasting the iron ore price will slide further from here in the second half of 2023.
As The Australian Financial Review reports, the broker believes the industrial metal will trade for an average of US$90 per tonne over this period, down another 10% from current levels.
Goldman Sachs forecasts that weaker margins for China's steel exports, coupled with lower seasonal steel production and an increase in iron ore production, will result in a 68 million tonne surplus in the iron ore market in the second half of 2023.
However, there is a silver lining for the ASX 200 mining stocks. Or a copper lining, really.
Unlike the decline in the iron ore price, Goldman Sachs commodities strategist Nicholas Snowdon believes that copper prices could perform strongly.
Commenting on the outlook for copper, Snowdown said:
Given current mine supply is running at a sharply lower growth rate than refined production and the implied concentrate destock in the first half of this year equates to nearly the entire 2022 concentrate surplus, the risks are skewed toward more restrained refined supply ahead.
If evidence for that starts to emerge, that would be a key support for China refined imports as well as copper prices given the limited ex-China copper stocks.
With copper counting as a sizeable and growing revenue earner for the ASX 200 mining giants, this could help buffer the impact of any further retrace in the iron ore price.
