New government data projects a significant downturn for mining over the next four years, which could impact ASX mining shares.
The Federal Government delivered its Mid-Year Economic and Fiscal Outlook on Wednesday.
According to the ABC, the Government is forecast to suffer a $8.5 billion hit to its tax take over four years from a loss of mining export revenue.
Wednesday's update to the Federal budget will reveal a $100 billion downgrade in mining exports by Treasury over the four years to 2027-28.
The blow reflects the drop in demand for iron ore and other commodities as Australia's largest trading partner, China, struggles to shore up its deteriorating economy.
China's shifting demand
China has historically been Australia's largest export destination, particularly in natural resources.
According to ANZ, the relationship between China and Australia remains heavily reliant on iron ore, liquid natural gas and coal. These resources represent 80% of the country's exports to China.
However, economists anticipate this to shift in the near future.
Looking ahead, the green transition, plus China's protracted property sector woes and shrinking population will lead to even weaker steel consumption, weighing on iron ore demand.
The Reserve Bank of Australia reinforces this view. The central bank projects that China's demand for Australian iron ore will fall by 80% by 2050.
Furthermore, according to BP, the share of coal used for power generation in China is forecast to fall from 63% in 2022 to 14% in 2050.
What does this mean for ASX mining shares?
The Treasury announcement may have contributed to the significant falls in stock prices among iron ore miners since the market opened on Wednesday.
More broadly, this decreased demand from China for commodities may be a contributor to the year-to-date losses for all three companies.
- BHP Group Ltd (ASX: BHP) shares are down 2.13% at the time of writing and 21.88% in the year to date.
- Rio Tinto Ltd (ASX: RIO) shares are currently 2.5% lower than on Wednesday and have dropped 14.5% since the start of January.
- Fortescue Ltd (ASX: FMG) had fallen 3.6% since Wednesday and a whopping 38.5% year to date.
Are these mining shares a buying opportunity?
All three mining giants are trading close to year lows, which may attract investors looking to swoop in on the discounted value of some of Australia's largest companies by market capitalisation.
However, China's annual economic planning conference led by President Xi Jinping last week and concerns over the impact of potential US-imposed tariffs lead me to believe it's more of a wait-and-see approach. There are so many factors up in the air.
All three companies engage in more than just coal and iron ore mining, however, and there is some optimism based on the outlook for copper and lithium. But until the fog clears on US-imposed tariffs, I'm staying away from buying these ASX mining shares.
