Is it time to bet on beaten up iron ore miners like BHP, Rio Tinto and Fortescue?

President Trump’s trade war has unleashed a wave of volatility across commodity markets. Since early April, copper prices have plunged 15% to a two-month low, while Brent crude has slid 13%, hitting levels unseen since March 2021.

Amid this turbulence, iron ore prices have shown surprising resilience, with a modest decline of just 2.2% to US$99.70 a tonne.

Yet, this relative outperformance hasn't shielded iron ore stocks. Over the same period, heavyweights BHP, Rio Tinto and Fortescue have slumped around 8%, 5% and 4.5% respectively.

Iron Ore Resilience

Iron ore prices held steady last week after reports emerged of 'brisk' spot buying at Chinese ports, driven by a pickup in construction activity, according to Daniel Hynes, Senior Commodity Strategist at ANZ Bank. This uptick follows data showing a rise in molten iron production in China, fueled by growing manufacturer confidence in downstream steel demand.

Adding to the cautiously optimistic outlook, BHP Chief Commercial Officer Rag Udd recently weighed in on the stability of Chinese iron ore demand over the medium term. Speaking to the Financial Review, Udd highlighted several key points. He expects Chinese steelmakers to maintain current production levels — around a billion tonnes annually — for several more years. This consistency, he argues, should keep iron ore prices above US$80 a tonne in the medium term.

Udd also pushed back against bearish narratives about China’s steel market. “I still hear conversations about residential construction markets tanking in China,” he said. “But the equal and opposite story that gets missed is the surge in machinery, now over 30% of steel demand from single digits. EV production is up. Anything tied to decarbonisation is up.” He sees a clear path for China’s steel output to remain robust in the coming years.

Addressing competitive pressures, Udd downplayed the threat of Guinea’s Simandou project, often touted as a potential “Pilbara killer.” “We’re talking about 120 million tonnes in a global contestable market of well over 1.5 billion tonnes,” he noted. “That conversation is overplayed."

Citi's Forecasts

Citi analysts have outlined their bear case price forecasts for iron ore, projecting US$90 per ton in 2025 and US$80 per ton in 2026. Despite this downside scenario, they argue that iron ore remains relatively resilient due to China’s capacity to boost infrastructure spending to bolster its domestic economy.

The analysts anticipate a further decline to US$75 per ton in 2027-28 under their bear case, but suggest that "meaningful China policy support could mitigate the effects of weaker global growth on China-dependent commodities like iron ore."

In a note released on Tuesday, the analysts noted that while recent Chinese policy measures have not prioritized infrastructure, a broader support package following potential tariffs would likely include a significant steel-intensive infrastructure element, such as metropolitan subway systems.

Ratings and Target Prices

Citi continues to see upside for most of the Big Three miners. Their ratings and target prices include:

• BHP – Buy with $45.00 target

• Rio Tinto – Buy with $130.00 target

• Fortescue – Neutral with $17.50 target

Examining BHP's financial forecasts more closely, 2025 appears to be a relatively tough year, driven by increasing capital expenditure, working capital demands, and higher production costs. For FY25, the analysts forecast:

• Underlying profit of $9.99 billion (down 26.8% year-on-year)

• The profit drop largely reflects a 20.5% drop in iron ore EBITDA due to lower prices and slightly higher costs

• Dividend yield of 4.2% (down from 6.0% a year ago)

• Dividend per share of 100 US cents (down 31.5% year-on-year)

The forecasts rely on a few interesting assumptions for the rest of the year, notably, the Australian dollar at 65 US cents (currently 60 US cents) and iron ore prices of US$102 a tonne.

The Bottom Line

Iron ore prices are showing a great deal of resilience during a period of market turbulence.

The resilience is genuine as the commodity is not influenced by the same level of speculative capital that tends to drive volatility for commodities like copper and gold. Instead, price movements for this steel-making ingredient are primarily driven by physical demand.

Despite the commodity’s steady performance, iron ore miners have lagged behind, with Fortescue notably underperforming by a significant margin. This gap widened following Fortescue’s first-half FY25 results, which flagged weaker-than-expected earnings due to elevated shipping costs, royalties, foreign exchange pressures, and depreciation. More importantly, the interim dividend fell below market expectations, disappointing income-focused investors.

A key concern continues to be the Iron Bridge project ramp-up, where performance issues with critical processing equipment have triggered a reassessment of the timeline. Analysts now widely anticipate a slower pace of progress compared to management’s earlier targets.

Singapore iron ore futures (blue), Rio Tinto (red), BHP (orange) and Fortescue (green) | Source: TradingView

This indicates that, despite robust iron ore prices, miners may struggle to keep pace due to a combination of higher-than-anticipated costs, unexpected shifts in dividend policies or payouts, and ongoing investments in new projects.

However, Rio Tinto seems to have bucked the trend, down just 5.5% year-to-date.