Rio Tinto Ltd (ASX: RIO) and the BHP Group Ltd (ASX: BHP) shares have not been immune to the retrace in global iron ore prices.
But the S&P/ASX 200 Index (ASX: XJO) mining giants are well-placed to ride out any further fall in the iron ore price while still earning hefty profits.
Having reached US$120 per tonne in May, the iron ore price dropped to US$90 per tonne in September and has since climbed back to US$100 per tonne today.
That's put pressure on BHP shares, which have fallen 8.7% over 12 months. The Rio Tinto share price, on the other hand, is up 1.8% over the full year.
As for those profits, Rio Tinto recently reported full-year after-tax profits of US$11.55 billion. And BHP reported a half-year underlying profit of US$5.1 billion.
Why the iron ore price could fall another 20%
Rio Tinto and BHP shares could both find those profits coming down, with analysts forecasting the iron ore price could slide 20% or more to US$80 per tonne. You have to go back to 2019 to find the steel-making metal trading at those levels.
The forecast retrace is largely due to steel production cuts announced by China last week, as well as significant new supplies expected to hit the market later in 2025.
According to Sam Berridge, a portfolio manager at Perennial (quoted by The Australian Financial Review):
China's steel exports have been growing dramatically over the past few years – that's been the relief valve for all that additional steel that China is not consuming at home and has been sending overseas. Now those overseas markets are largely saturated, so to protect their own industry, they will cut production.
Iron ore has had a euphoric run for two decades now, and it's unusual that a commodity price would remain as high as it has for as long as it has with margins … as strong as they are.
Berridge expects the iron ore price to fall to $US$80 per tonne.
Rio Tinto and BHP shares in the sweet spot
But the falling iron ore price won't hit all ASX mining stocks equally.
With low production costs and high-quality ore, Rio Tinto and BHP shares should be partly insulated from any fall.
"The likes of BHP and Rio, they're still making fantastic margins at current prices. If the iron ore comes back to US$80, they'll continue to make pretty solid margins," Berridge said.
Ben Cleary, portfolio manager at Tribeca Global Natural Resources Fund added:
Alone, the cuts aren't much of an issue for Australian iron ore producers that supply higher quality steel producers at the lower end of the cost curve. The bigger impact on Australian producers will be higher grade iron supply from Simandou later this year that will compete and potentially displace some Australian supply.
Rio Tinto is targeting first iron ore at its Simandou project in Guinea late in 2025.
The Rio Tinto share price is up 0.5% today at $119.32, despite the broader market pullback.
BHP shares are up 0.4%, trading for $39.36 apiece.
