BHP, Rio Tinto and Fortescue shares under pressure as iron ore drops below US$100

Iron ore majors BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) are trying to bounce from session lows after iron ore futures in Singapore fell -6% to year-to-date lows of US$98.10 a tonne on Tuesday.

Singapore iron ore futures (Source: TradingView)

China's steel giant warns of "severe challenges"

The world's largest steelmaker, Baoshan Iron & Steel warned about "severe challenges" in the third quarter after posting a -48% nosedive in first-half net income, Bloomberg reported on Tuesday.

The steel giant said its margins "have been squeezed after steel prices plunged more than raw material costs."

Stimulus headlines versus reality

There's been no shortage of stimulus-related headlines from China so far in 2022 as the country desperately tries to restart its growth engine.

More recently, China's State Council issued an addition 300 bn yuan (US$44bn) in quotas for infrastructure spending. In addition to the 300 bn yuan already announced at the end of June.

Still, perhaps the damage that's been inflicted on China's property market has become so deep that sprinkling a few billion dollars here and there just doesn't cut it.

As Bloomberg pointed out two weeks ago, "... the area of land covered by construction projects launched in July in the three-largest city regions -- around Beijing, Shanghai and Guangzhou -- fell -44% compared with a year ago."

"... heavy equipment was used less in July than in the same month last year. That drop was also seen in demand for industrial goods last month, with steel output falling to its lowest level since 2018 and cement production down 7% from the previous year."

China's infrastructure and residential property construction sectors typically account for 50-60% of domestic steel consumption, according to the Office of the Chief Economist.

"A lack of growth in construction activity will keep steel and iron ore demand weak in the short term," said ANZ senior commodity strategist, Daniel Hynes.

A wall of worries

Adding further insult to injury were reports from a symposium of iron and steel enterprises in China's steelmaking hub of Tangshan, that emphasised the need to reduce steel production capacity by 8.3m tonnes in 2022, Shanghai Metals Market reported on Tuesday.

"In this scenario, the market sentiment weakened," the report said.

Adding further insult to injury were the Fed Chair Powell's hawkish remarks last Friday and a wrath of EU inflation data that supports a jumbo sized rate hike that could send Europe into a more severe recession.