Iron Ore

3 things for BHP, Rio Tinto and Fortescue investors to watch

Thu 25 May 23, 12:07pm (AEST)
Yellow truck at a mine site
Source: iStock

Key Points

  • China's economic growth slowed in April, as indicated by the decline in industrial production and fixed asset investment
  • China's property and construction sector is weakening, as evidenced by the decline in new property starts
  • China's crude steel output fell in April, which suggests that demand for iron ore is also weakening

The selloff across iron ore and base metals accelerated this week amid growing concerns about growth in China. This has been exacerbated by US debt ceiling concerns, the increasing likelihood of more central bank tightening and a stronger US dollar.

Iron ore futures are trading at US$96 a tonne on Thursday – down 11% in the past week and down almost 30% since mid-March to a six month low.

Likewise, shares in BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) have fallen around 10-15% from February peaks and trading close to levels not seen since November 2022.

Iron ore
Iron ore (Yellow) vs. Rio (Red), BHP (Green) and Fortescue (Blue)

China’s initial reopening in late 2022 helped boost iron ore from lows of US$75 in October 2022 to a brief peak of US$140 in February. But prices are now on the backfoot amid a flurry of disappointing economic data points, including weak construction activity and steel output.

As prices pull back, here are three data points to consider.

#1 Economic data: “A Temporary Hiccup”

“Industrial production hit a hiccup in April amid slower public capex and fading backlog orders. 2Q GDP is tracking below market expectations,” Morgan Stanley analysts said in a note on Wednesday.






11 May

Inflation Rate YoY (Apr)




11 May

Producer Price Index YoY (Apr)




16 May

Industrial Production YoY (Apr)




16 May

Fixed Asset Investment YoY (Apr)




While growth in April was weaker than expected, Morgan Stanley reaffirmed its full-year GDP growth forecast of 5.7%, with expectations of additional policy easing and broadening consumption gains in the second half.

#2 Property data: Still weakening

China’s property and construction sector accounts for about 50-60% of overall domestic iron ore consumption. In 2022, new property starts fell by 24% year-on-year, marking the biggest annual decline since 1998.

New property starts continued to decline in April, down 27.3% year-on-year and down 21.2% for the first four months of 2023. 

“A number of investors we spoke to are cautious about China's physical market recovery. They have been disappointed by the sequential softening in sales momentum from April,” said Morgan Stanley. 

“Further major policy easing is unlikely unless the YTD sales outperformance in high-tier cities weakens significantly YoY.”

2023-05-25 12 04 54-Window
Source: Morgan Stanley

#3 Steel data: Output down, more cuts to come

China’s crude steel output fell 1.5% year-on-year and 3.2% month-on-month in April. 

“Considering the potentially fewer finished steel exports on weaker orders and lower pricing difference,and sequentially weakening domestic steel demand, crude steel output may decline gradually sequentially,” the analysts warned.

“Also, China's flattish YoY crude steel output target for 2023 suggest that further output reductions are required during the rest of the year.”

Morgan Stanley says iron ore prices are likely to continue to trend lower and sees downside risks to its second half base case forecast of US$110 in Q3 and US$90 in Q4. 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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