Iron Ore

Macquarie flags near-term earnings downside for all iron ore miners

Fri 04 Nov 22, 12:04pm (AEST)
A train of ore carts extending into the horizon in an Australian setting
Source: iStock

Key Points

  • Iron ore tumbled below US$80 a tonne earlier this week, reflecting an uncertain economic outlook in China
  • Macquarie warns that the weakness presents material downside risks for earnings and dividends for all iron ore miners
  • Macquarie retains a preference for BHP, given its organic growth options.

Macquarie says the price of iron ore is trading below its short-term price forecasts and presents downside risks for all iron ore miners for FY23-24.

Iron ore prices tumbled -12% last week and closed below US$80 a tonne this Monday, a level not seen since May 2020.

"The market sentiment remains weak on the arrival of the weak season and an uncertain Covid-19 policy outlook in China. Chinese property sales continued to struggle despite easing policies, against the backdrop of COVID lockdown disruptions," Macquarie analysts said in a note on Tuesday.

Chinese steel margins continue to sit in negative territory, which is a major contributor to weak demand for the steelmaking ingredient. Though, "their profit loss narrowed last week thanks to the plunge in the iron ore price."

'Near term earnings downside'

Smaller miners were viewed as players that were "more leveraged to iron ore price movements and have greater downside risks".

Towards the large cap end of town, Rio Tinto (ASX: RIO) was forecast to have an earnings downside risk of 27% in FY23 and 23% in FY24 while BHP (ASX: BHP) had potential earnings downsides of 21% and 12% over the two years.

Mineral Resources (ASX: MIN) was the only name that had exposure to meaningful earnings upside due to its growing lithium operations, with upside of 10% and 37% in FY25 and FY26 respectively.

Preferred picks

"BHP is our preferred large cap exposure as the company boasts stronger organic growth options," said Macquarie.

"Our positive view on Mineral Resources is unchanged despite the weaker outlook for iron-ore as the impact is outweighed by our strong outlook for lithium."

"Deterra Royalties (ASX: DRR) offers low volatility exposure to iron-ore via its royalty derived from BHP’s production at Mining Area C which is tracking ahead of schedule."

Macquarie's ratings




Target price






Rio Tinto




Fortescue Metals




Mineral Resources




Champion Iron




Deterra Royalties




Mt Gibson Iron



Source: Macquarie Research | Table: Market Index


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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