I've been writing regularly about how I've been seeing the ASX iron ore share sector as a cyclical opportunity.
The iron ore price has a major impact on how much profit the ASX mining share can make.
In the last few months, we've seen the iron ore price collapse from above US$140 per tonne to around US$90 per tonne. The reduced demand for iron ore in China has been disappointing, and the global iron ore supply has been increasing.
However, there may be some light at the end of the tunnel for the ASX iron ore shares with positive news out of China.
China launches major stimulus
According to reports by the Australian Financial Review, the People's Bank of China governor Pan Gongsheng announced a reduction in the amount of money that banks must hold in reserve. This reduction is the lowest level since at least 2020. The Chinese interest rate also decreased.
The AFR also reported that the bank has lowered borrowing costs on US$5.3 trillion of mortgages and eased rules for second-home purchases. China will also allow funds and brokers to utilise the People's Bank of China money to buy shares.
Reuters reported that the average interest rate for existing mortgages was being lowered by 50 basis points, while the minimum house deposit on all types of homes has been reduced to 15%.
Bloomberg Economics China economist Eric Zhu was quoted by the newspaper as saying:
At a minimum, this will give a much-needed boost to sentiment. Our baseline forecast has been for growth to come in at 4.7% this year.
This powerful package of monetary stimulus suggests growth could approach the 5% target.
Why I'm more bullish on ASX iron ore shares
I'm not expecting this announcement to send the iron ore price back to US$140 per tonne any time soon. However, I do think it could help spur the Chinese economy back towards a recovery.
If China can get its economy back into spending, investing, and material growth, then the ASX's major iron ore shares, BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), and even Fortescue Ltd (ASX: FMG), could benefit.
Any noticeable increase in the iron ore price should help improve the miners' monthly profit materially. That would be good news for profits, dividends, and share prices.
I like Rio Tinto and BHP for their growing copper exposure as well. Copper is appealing because of the electrification trend around the world.
With the Rio Tinto share price 14% lower and the BHP share price 11% lower than in May, I'm still calling them appealing opportunities. But if their share prices keep regaining ground, I'd suggest the ASX iron ore share sector eventually won't be the market-beating idea that it appears today.
