The big three S&P/ASX 200 Index (ASX: XJO) mining stocks should be able to navigate the plunging iron ore price while still remaining profitable.
Indeed, despite a steep fall in the price of the industrial metal to just over US$95 per tonne on Thursday night, Rio Tinto Ltd (ASX: RIO) shares closed the session up 1.6% on Friday.
Meanwhile, BHP Group Ltd (ASX: BHP) shares closed up 2.0% on Friday, while the Fortescue Metals Group Ltd (ASX: FMG) share price led the ASX 200 mining stocks to close up 3.1%.
Now, that doesn't mean the miners have been immune to the falling iron ore price, which kicked off 2024 trading for US$144 per tonne.
Indeed, year to date:
- BHP shares are down 21%
- Rio Tinto shares are down 20%
- Fortescue shares are down 42%
But all three of the ASX 200 mining stocks count among the lowest cost producers in the world. And should demand remain weak, they're not without their own, collective pricing power.
Iron ore price slide pressures ASX 200 mining stocks
Unfortunately, the iron ore price rout has continued since we covered the weakness in Chinese steel demand here on Friday.
With China's real estate markets continuing to struggle and steel inventories piling up, Hu Wangming, chairman of Chinese steel-making giant Baowu, warned last week that China's steel markets are facing a "harsh winter" that's likely to be longer than most analysts expected.
The iron ore price has now slipped below US$92 per tonne and could well be headed lower yet.
"We think iron ore prices can drop to as low as US$90 a tonne given how negative steel mill margins have become," Vivek Dhar, director of mining and energy research at Commonwealth Bank of Australia (ASX: CBA), noted.
In early afternoon trade today, all three of the big ASX 200 mining stocks are in the red.
At the time of writing, BHP shares are down 0.65%, Fortescue shares are down 1.36%, and Rio Tinto shares are down 0.40%.
And it's not just the miners and their shareholders that are likely to see less revenue coming in.
Commenting on the retreating iron ore price, Treasurer Jim Chalmers (quoted by ABC News) said it offered "another reminder that we are not immune from volatility and uncertainty in the global market."
"We're following these developments very closely because of their potential impact on our economy and our budget," Chalmers added.
As for investors in ASX 200 mining stocks, Dhar said, "Markets are justifiably worried that iron ore prices may be sustained below US$100 per tonne in the near term.
However, BHP, Rio Tinto, and Fortescue's low-cost production profiles offer them a healthy buffer if prices remain subdued.
And as Bob Brackett, mining analyst at Bernstein, pointed out (courtesy of Financial Times), the big miners could take a page out of OPEC's book, if needed, and stabilise global prices but cutting their output.
According to Brackett:
Iron ore is such a well-structured industry. The big global miners control their own supply chains. In the same way OPEC won't flood the market, they will simply slow down a bit if the market doesn't want their tonnes.
