S&P/ASX 200 Index (ASX: XJO) mining stocks have had a tough start to 2024.
Two and a half months into the new year sees the ASX 200 up 1.0% at market close on Tuesday.
Not shooting the lights out, perhaps. But respectable. Especially as this doesn't include the dividends many of the blue-chip stocks have already paid out in 2024.
And the benchmark index certainly hasn't gotten any help from Australia's large-cap mining shares.
Here's how these three leading ASX 200 mining stocks have performed so far this year:
- Fortescue Metals Group Ltd (ASX: FMG) shares are down 14.4%
- BHP Group Ltd (ASX: BHP) shares are down 15.4%
- Rio Tinto Ltd (ASX: RIO) shares are down 13.4%
Why are the big ASX mining shares getting smashed in 2024?
The biggest headwind facing the big three Aussie miners has been a sharp fall in the price of iron ore.
BHP, Fortescue and Rio Tinto all earn significant revenue from other commodities, including copper.
But iron ore is the top revenue earner for all three ASX 200 mining stocks.
At market close yesterday, iron ore was trading for US$107 per tonne. That was down almost 7% overnight. And it puts the price of the steel-making metal down some 26% since 2 January, when it was trading for US$145 per tonne.
Much of the retrace in the iron ore price can be pinned on weak demand from China, the world's top iron ore consumer and number one export market for Aussie shipments.
As you're likely aware, China's once-booming economy has been struggling to meet the government's scaled-back growth target of 5%.
The middle kingdom's steel-hungry real estate sector has been a particularly underwhelming performer.
Over the latter months of 2023, investors had been banking on some significant stimulus measures from the Chinese government. Those expectations helped support the iron ore price and by connection the ASX 200 mining stocks.
To date, however, those stimulus measures have been more of a drip feed than the bazooka policies China's economy appears to need to reignite economic growth.
And those drip feed policies were reinforced this week at the annual National People's Congress in Beijing.
The lack of substantial new stimulus measures drove down the iron ore price to levels not seen since August.
But things could yet take a sharp turn for the better.
Why things could take a sharp turn-up for ASX 200 mining stocks
I believe ASX 200 mining stocks like BHP, Fortescue and Rio Tinto could be in for a significant rebound after the big retrace in early 2024.
First, take a look at copper prices.
The copper price has managed to actually edge up by 1% this calendar year, with the red metal currently trading for US$8,653 per tonne.
The copper price is less directly impacted by rising or waning demand from China. And the resilient price is a bullish sign for the growth outlook of the wider global economy.
'Dr copper' after all, is often used to gauge the health of the worldwide economy.
Second, I don't believe that Chinese President Xi Jinping can afford to see China's economy fall short of its 5% stated growth target.
That means either the economy, and the nation's demand for iron ore, will pick up growth under the already announced measures. Or the government will have little choice but to up its stimulus measures.
Either outcome, if they eventuate as I expect, should prove bullish for ASX 200 mining stocks.
Commenting on the outlook for additional stimulus measures from China, Commonwealth Bank of Australia (ASX: CBA) analyst Vivek Dhar said (quoted by The Australian Financial Review):
The ultimate question will be the willingness of policymakers to defend China's economic growth target of around 5% this year.
We think the goal will be challenging, but if growth undershoots even downside expectations of policymakers, it will likely open the door to more infrastructure-related stimulus.
That potential increased infrastructure-related stimulus out of China should lead to a boost in steel manufacturing and the accompanying demand for the iron ore to produce it.
Which is why I think ASX 200 mining stocks like BHP, Rio Tinto and Fortescue are looking cheap following this year's sharp sell-off.
Now, as always, I encourage you to do your own thorough research before investing in any ASX shares. If you're not comfortable with that or simply don't have the time, then seek out some expert advice.
