S&P/ASX 200 Index (ASX: XJO) mining shares look to be enjoying an overnight uptick in the iron ore price.
Though, as we'll look at below, that may not last.
With iron ore up 0.9% overnight to US$93.55 a tonne, the BHP Group Ltd (ASX: BHP) share price is up 3.2% at $37.28 a share.
Meanwhile, Fortescue Ltd (ASX: FMG) shares are up 2.6% at $15.31, while Rio Tinto Ltd (ASX: RIO) shares are changing hands for $108.14 apiece, up 3.8%.
For some context, the ASX 200 is up 0.2% at this same time.
Unfortunately for shareholders, the same can't be said for the performance of the big miners over the past year.
While the ASX 200 has gained 10.4% over the year, with the iron ore price having dropped from US$108 per tonne 12 months ago, all three of the ASX 200 mining shares are in the red for the year.
Here's how they've performed over 12 months (excluding their dividend payments):
- BHP shares are down 14.0%
- Rio Tinto shares are down 11.4%
- Fortescue shares are down 29.5%
And amid some unexpected developments, the big Aussie miners, which all earn the majority of their revenue from iron ore, could be in for more headwinds during the next few months.
Oversupply headwinds brewing for ASX 200 mining shares
As The Australian Financial Review reported, the Pilbara Ports Authority revealed that iron ore shipments from Port Hedland, the biggest bulk terminal in the world, hit 53.1 million tonnes in May.
That's up 13.7% from April, with year-to-date iron ore shipments now at 15-plus-year highs. Adding to the potential surplus of the steel-making metal that could pressure the ASX 200 mining shares, Brazil's iron ore shipments hit all-time highs in April.
And in other potential oversupply concerns, the rising shipments come as Chinese steel production slumped to seven-year lows in May to 86.6 million tonnes amid government-implemented steel output cuts.
What are the experts saying?
Commenting on the medium-term outlook for iron ore, and by extension ASX 200 mining shares like BHP, Rio Tinto, and Fortescue, Paul Bloxham, HSBC's chief economist for global commodities, said (quoted by the AFR):
We've passed peak steel production in China, and we've got ample iron ore supply, which means prices look as though they're heading lower in the short term. The medium-term story is that iron ore below US$100 a tonne is something we're probably going to see a lot more of.
Commonwealth Bank of Australia (ASX: CBA) analyst Vivek Dhar noted, "It is unusual for steel output cuts to be implemented this early in the year. It is still unclear what degree of steel output reduction policymakers are seeking in 2025."
And despite the sizeable retrace in the ASX 200 mining shares over the past year, Perennial portfolio manager Sam Berridge believes there could be more pain to come.
"While the iron ore outlook is down, it's pretty hard to step in and buy those stocks," he said. "This rebalancing of supply and demand is only just starting, and it's got a fair way to go."
As for what's next for the iron ore price, bearish analyst forecasts say the industrial metal could drop as low as US$80 per tonne this year, while the more bullish analysts expect it to hold closer to US$100 per tonne.
Stay tuned!
