The iron ore price is going through some painful volatility, which may have a significant impact on various ASX iron ore shares if the commodity price keeps dropping.
Resource prices are crucial for commodity businesses as they can significantly impact a company's short-term profitability.
China is a major purchaser of Australia's iron ore, so the performance of the Chinese economy can significantly impact the price of iron ore, ASX iron ore share profits and dividends, and Australia's broader economy.
In early share market reaction, the BHP Group Ltd (ASX: BHP) share price is down 0.8%, the Rio Tinto Ltd (ASX: RIO) share price is down 0.3%, and the Fortescue Ltd (ASX: FMG) share price is down 0.5%. Compared to the S&P/ASX 200 Index (ASX: XJO), which is currently down by 0.2%, these resource shares are underperforming.
Weakening iron ore price
According to reporting by the Australian Financial Review, the iron ore price dropped to below US$100 per tonne in Singapore on Tuesday after a meeting of Chinese officials – called the Third Plenum – didn't lead to any significant economic stimulus announcements.
ANZ said in a note to clients:
Investors have been disappointed there weren't any meaningful stimulus measures announced at the Third Plenum that would help boost demand.
Data released this week [also] shows the current mismatch in supply and demand.
Bloomberg reported that Brazil, the world's second-biggest iron ore exporter, showed data showing daily average shipments reaching 1.62 million tonnes in the first 15 business days of July, which was a "faster pace than in the full month a year ago."
Bloomberg reported that iron ore has been one of the worst-performing major commodities this year amid signs that the iron ore price is in surplus, with inventory at Chinese ports significantly increasing.
The news website reported on comments by Han Jing, a senior analyst at SDIC Essence Futures, who said:
China's recent macro policy did not deliver anything beyond what was already expected.
Meanwhile, the global seaborne market is on the side of surplus.
Share price snapshots
Since the start of 2024, the BHP share price is down 18.5%, the Rio Tinto share price is down 16.8% and the Fortescue share price is down 28%.
However, the ASX 200 has increased by 4% year to date, indicating significant underperformance in 2024 for ASX iron ore shares.
