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Why the BHP and FMG share price is being battered today


Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals are still up 10-20% over the past 12 months.

ASX mining investors could be spending their weekend on tenterhooks, with sector stocks among the worst performing on the ASX on Friday. Shares in the big iron ore miners BHP (ASX: BHP) and Rio Tinto (ASX: RIO) were down 2.5% each, while Fortescue Metals Group (ASX: FMG) plummeted more than 7%. Even smaller player Mineral Resources (ASX: MIN) has felt the impact, sliding 6.5%.

What is behind the drop in the BHP and FMG stock prices?

Overnight, iron ore prices recorded a fresh plunge and are now perilously close to returning to double-digits. Spot prices for benchmark 62% fines dived another 7.7% to US$107.21 a tonne.

The latest decline came after China reported a drop in the country’s steel production in August. It produced 83.24 million tonnes of crude steel in August, a 13.2% drop from a year ago, according to data released by China’s National Bureau of Statistics as the country curbed steel industry output to cut emissions.

Spot iron ore prices have now dropped more than 55% from their peak of US$237 a tonne in May. Prices of the steel-making ingredient largely traded above US$200 a tonne between April and August due to a spike in demand in China and global supply constraints.

The extended run up in prices has immensely benefited the big miners and was reflected in record profits for BHP, Rio Tinto and Fortescue this year. It also directly contributed to their dividend payouts ballooning during the August earnings season.

Downgrades on the horizon

That dream run seems to have definitely come to an end. But concerningly for investors, the correction in iron ore prices has played out faster than expected. Analysts had expected the decline to be much more gradual. Even federal government estimates had indicated that iron ore prices would ease over the second half of 2021, but would stay above US$100 a tonne until late-2022.

“This reflects a sharper than expected slowdown in property activity in China thanks to tightening measures/Evergrande risk of default impacting confidence,” analysts at UBS said in a note on Friday.

UBS analysts have now downgraded their iron ore price forecasts, with the expectation that the iron ore market will swing into surplus in the second half of 2021, and prices falling below US$100 a tonne over the next few months, before averaging US$89 a tonne in CY22.

UBS also downgraded Fortescue to a "Sell" from "Neutral", and cut its price target on the stock to $15 a share from $18 a share. It also cut Rio to "Sell" with a price target of $86 a share. Investors will now be watching for a reversal of the share prices of the 3 iron ore miners, which hit their 52-week peaks in recent months.

Considering buying mining shares?

If you are still keen on buying shares in BHP, Rio Tinto or Fortescue, you can invest through an online share trading platform.

Keep in mind that not all platforms offer the same list of stocks. Some offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

Choose from the dozens available for Australian investors. Compare the features and fees from the plethora of trading platforms available.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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