S&P/ASX 200 Index (ASX: XJO) mining stocks are in the red today.
Here's how the big three iron ore miners are faring in early morning trade on Tuesday:
- Fortescue Ltd (ASX: FMG) shares are down 0.3%
- BHP Group Ltd (ASX: BHP) shares are down 0.6%
- Rio Tinto Ltd (ASX: RIO) shares are down 0.5%
For some context, the ASX 200 is down 0.2% at this same time.
This underperformance comes as the iron ore price, the miners' top revenue earner, tumbled 4% to US$96.95 per tonne.
That sees the price of the critical steel making metal down some 23% since early January, when the same tonne was trading for US$144.
So, what's going on?
ASX 200 mining stocks facing slumping Chinese economy
Investors in ASX 200 mining stocks are once again faced with the prospect of a prolonged slowdown in China's economic growth path.
In the latest headwinds dragging on the iron ore price, Chinese economic data released over the weekend showed another pullback in factory activity in August, now at a six-month low.
Adding to the steel demand woes in the world's number two economy, China's struggling residential property markets declined further, with high steel inventory levels continuing to drag on prices.
"The ongoing contraction in China's factory activity was joined by a deepening slump in the property sector," Daniel Hynes, a senior commodity strategist at ANZ Group Holdings Ltd (ASX: ANZ) said (quoted by The Australian Financial Review).
And the plunging value of new homes sales may not have run its course yet. Hynes noted July data revealing a huge surplus of some 382 million square metres of unsold new homes in the nation.
With this latest data at hand, it looks like ASX 200 mining stocks could be facing iron ore prices below US$100 per tonne for some time yet.
And this has economists clamouring for China to do more to boost its struggling factory and property sectors.
"The challenges and difficulties in stabilising growth over the coming months will be substantial. There is an increasingly urgent need for China to enhance policy support," Wang Zhe, senior economist at Caixin Insight Group, said (quoted by Bloomberg).
Bloomberg economists Chang Shu and Eric Zhu added:
The economy will need more policy support to pull out of its extended period of weakness… Government spending will have to remain the key lever to lift aggregate demand when private demand is not forthcoming, and the pace needs to accelerate.
As for when investors in ASX 200 mining stocks might expect the Chinese government to roll out more significant stimulus policies, we may need to wait until the fourth quarter of 2024.
Lu Ting, an economist at Nomura Holdings, said:
In the near term, we expect the PBOC [People's Bank of China] to guide commercial banks to lower existing mortgage rates. For bolder stimulus measures, we think this is more likely to happen in the fourth quarter, when Beijing's concerns over growth become more elevated.
