Iron ore miners smashed as prices slump to lowest since 2020

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 (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