Investors in S&P/ASX 200 Index (ASX: XJO) mining stocks are keeping one eye on China.
And for good reason.
As the biggest consumer of iron ore and Australia's top export market, when China sneezes, the big three mining shares tend to catch a cold.
Iron ore kicked off 2024 trading for just over US$143 per tonne.
But amid ongoing sluggishness in China's steel-hungry property markets, the iron ore price has trended lower through most of the year. Overnight iron ore dropped 3% to US$98.55 per tonne.
As you'd expect, that's thrown up some headwinds for ASX 200 mining stocks.
Here's how they've performed so far in 2024:
- Fortescue Metals Group Ltd (ASX: FMG) shares are down 15.6%
- BHP Group Ltd (ASX: BHP) shares are down 11.6%
- Rio Tinto Ltd (ASX: RIO) shares are down 10.6%
For some context, the ASX 200 is up 2.4% year to date.
But despite ongoing issues with China's real estate sector, some unexpectedly strong data out over the weekend could offer some countering tailwinds for the big miners.
ASX 200 mining stocks eyeing a rebound
China's factory activity exceeded consensus expectations for March.
The government released its manufacturing purchasing managers' index, which climbed to 51.1 on Monday, Bloomberg reports. Any reading over 50 signals growth, with March marking the fifth consecutive month of expansion.
With the nation's industrial sector recovering, that's increasing investor bets that China can still achieve its 2024 economic growth target of 5%.
And China's government is intent on helping its industrial base, with pledges to support businesses with equipment and other material upgrades.
"Looking forward, the roll-out of policies such as the large-scale equipment upgrade will continue to support demand for the manufacturing sector," Xiao Jinchuan, an analyst with Guangfa Securities said (quoted by Bloomberg).
Not that ASX 200 mining stocks like BHP, Rio Tinto and Fortescue are fully out of the woods just yet.
According to Wang Zhe, senior economist at Caixin Insight Group:
Downward economic pressures persist, employment remains subdued, prices remain low, and insufficient effective demand has not been fundamentally resolved, underscoring the need to further boost domestic and external demand.
The biggest news investors are holding their breath for is a significant boost in stimulus measures to get the Chinese property sector back on its feet.
According to Bloomberg Economics, real estate made up nearly 25% of China's economy in 2018. That's shrunk to under 20% today.
And despite the unexpected growth in factor activity, China's property markets still drive the majority of iron ore demand.
So far, the government hasn't come out with the so-called bazooka stimulus measures, like multi-billion-dollar infrastructure spending, needed to counter the decline in steel demand from the property markets.
But, in a potential boost for ASX 200 mining stocks, I expect we'll see more such measures announced over the coming months.
After all, if the government falls too far short of its 5% GDP growth goals, it could be bad news for President Xi Jinping. And at the end of the day, Xi has a lot of stimulus levers left to pull.
