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Why are the BHP and RIO share prices weaker?

Posted: 1 February 2022 12:14 pm
News
BHP-shares-01Feb_1800x1000_Finder

Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals have climbed 5-12% over the past month but fell today.

Mining shares are proving to be a drag on the ASX indices on Tuesday, with top traded shares BHP (ASX: BHP) and Rio Tinto (ASX: RIO) both dropping more than 2% each, while Fortescue Metals Group (ASX: FMG) was down 0.8% to $19.72 at the time of writing.

Why have the BHP and RIO stock prices slipped?

The top miners have enjoyed a great run over the last few months in the iron ore price, which has rebounded more than 50% since slipping below the US$90 level in November last year.

Prices for the benchmark 62% fines product rose as high as US$147 a tonne last week, amid growing worries about potential supply hurdles and labour disruptions in Western Australia.

But that has alarmed state authorities, and the state planner promised just before the Chinese New Year holiday that it will take effective measures to strengthen regulation and supervision of iron ore prices.

China’s National Reform Development Commission on Friday vowed to crack down on “price gouging and malicious speculation” to ensure price stability, it said in an official statement. NDRC said it would also conduct investigations with relevant departments and severely crack down on illegal activities to keep prices stable.

State media organisation the Global Times also ramped up rhetoric blaming hoarding ahead of the Lunar New Year holiday for driving the spike in prices.

Cloudy outlook

The warnings could be enough to stall the recent rally in the price of the steel making ingredient.

It's worth remembering that last year, when China forced steel mill product to fall in the second half of 2021, the price of iron fell nearly 60%, albeit off a record high.

That led to the big miners facing downgrades from analysts over concerns about the sustainability of their record profits. As such, investors are worried about history repeating itself.

Analysts are also urging caution on the price outlook due to high inventories at Chinese ports and the cloud hanging on China’s debt-ridden property sector.

Broker UBS has flagged a base case scenario of iron prices at US$85 per tonne this year, saying demand dynamics do not favour ongoing strength.

Ratings agency Fitch does expect an increase in steel production in China after the Winter Olympics and Chinese New Year, but is still forecasting for the iron price to moderate to US$90 per tonne later this year.

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