This year has been a rough one for Rio Tinto Ltd (ASX: RIO) and BHP Group Ltd (ASX: BHP) shares. Both are down by around 20% in 2024 to date, as shown in the chart below.
We have also seen a huge performance divergence between the large ASX mining shares and the ASX bank shares. The Commonwealth Bank of Australia (ASX: CBA) share price is up around 25% this year.
Commodity prices can be volatile because of the variability of supply and demand, and iron ore is a particularly cyclical commodity, with no guarantee of when or by how much the iron ore price will move.
China's support of the commodity has waned since the start of the year, sending the iron ore price briefly to below US$90 per tonne earlier in September. It was above US$140 per tonne at the start of 2024.
So, with the major ASX iron ore shares in the doldrums, is now an opportunistic time to consider these beaten-up stocks? Here's why I think Rio Tinto shares and BHP shares are both buys during this period.
Positive signs are building
There seem to be green shoots in China that could start helping the recovery of iron ore.
According to reporting by Trading Economics, Chinese President Xi Jinping has encouraged China to reach its annual economic and social development goals and tasks, raising the prospect of more economic stimulus within the country.
Trading Economics also pointed to a Bloomberg report that China will cut interest rates on more than $5 trillion of mortgages as early as September.
Another potentially positive data point is that the inventory of finished steel products held by Chinese traders reportedly declined for the ninth straight week to a nearly eight-month low.
When it comes to ASX mining shares, I believe it can be smart to employ a 'buy low, sell high' strategy. It can seem daunting to invest when prices are low because there are a lot of economic indicators suggesting it's a bad time for miners, but that's exactly why the commodity price and share prices are so low in the first place.
Why I'd buy Rio Tinto shares and BHP shares
I believe the biggest miners in the world, like Rio Tinto and BHP, have scale advantages that other miners don't have. Their huge size means they typically have the best unit costs, which means they can profit at a lower iron ore price than most or all of their peers.
With prices this low, we may see smaller, high-cost producers decide to temporarily pause production (lowering supply), which could then boost the iron ore price. Or, the iron ore price could recover due to Chinese demand.
At the low share prices for these two ASX mining giants, I don't believe the iron ore price needs to recover much (if at all) for investors to still do well out of these stocks over the long term.
BHP and Rio Tinto are two of the largest copper miners in the world, which gives them pleasing diversification and another avenue to deliver good cash flow in the coming years as electrification increases demand.
Copper is less reliant on Chinese demand and could be less volatile over the long term.
