Iron Ore

Iron ore miners smashed as prices slump to lowest since 2020

Fri 28 Oct 22, 1:35pm (AEST)
Iron Ore 1 Mining
Source: iStock

Key Points

  • Iron ore prices have been rocked by a sharp decline in global steel prices
  • ANZ Research estimates that steel prices in the US have fallen -50%
  • The analysts expect prices to trend lower in the December quarter and into 2023 as demand fails to pick up

Iron ore futures have collapsed to US$81 a tonne, a level not seen since April 2020 and not far off pandemic lows of around US$78.

Fortescue (ASX: FMG) is leading towards the downside, sliding -8.7% at the time of writing, close to a one-year low. While diversified heavyweights BHP (ASX: BHP) and Rio Tinto (ASX: RIO) are also feeling the pain, both down almost -5%.

Singapore iron ore futures chart
Singapore iron ore futures (Source: TradingView)

Macro headwinds curb prices

"A bleak economic outlook and challenges in China’s property market do not bode well for bulk commodities," ANZ Research said in a note.

"Europe’s energy crisis and winter curbs in China leave little room for any recovery in steel production in Q4 2022."

But the problem isn't just isolated to China. The rest of the world is beginning to show cracks in the demand for steel, with prices in the US down almost -50% and most other regions showing declines between 20-25%, according to ANZ.

"Global steel production is estimated to contract by nearly 5% year-on-year this year. Narrowing profit margins would also keep production subdued."

The analysts expect iron ore prices to trend lower in the fourth quarter and into 2023 as the demand side fails to show any improvement.

Macquarie price targets

"We maintain our preferences for BHP given its organic growth options; Mineral Resource benefits from the lithium exposure, while Deterra Royalties offers low volatility exposure," said Macquarie analysts in a note on Wednesday.

The investment bank's ratings and target prices among the iron ore majors included:

  • BHP: Outperform with a $45.00 target price

  • Rio Tinto: Neutral with a $95.00 target price

  • Fortescue Metals: Underperform with a $14.50 target price

 

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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