Investing in ASX 200 mining stocks? Here's Citi's latest iron ore price forecast

ASX 200 mining stocks digging up iron ore rocketed higher from early November through to April amid surging prices for the industrial metal. But is the party over?

| More on:
A group of three men in hard hats and high visibility vests stand together at a mine site while one points and the others look on with piles of dirt and mining equipment in the background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ASX 200 mining stocks are eyeing the outlook for iron ore demand
  • The industrial metal hit recent lows below US$80 per tonne in November and highs above US$130 per tonne in March
  • Sluggish demand from China has seen Citi cut its short-term forecast for the iron ore price to US$100 per tonne, with a possible low of US$90 per tonne

S&P/ASX 200 Index (ASX: XJO) mining stocks have enjoyed a big run higher since iron ore hit recent lows of around US$78 per tonne in early November.

The industrial metal reached 2023 highs of US$132 per tonne on 15 March as traders remained confident of an uptick in demand amid China's ongoing pandemic reopening.

Despite a big retrace over the past month, with iron ore falling to US$120 per tonne last Wednesday and sliding to just US$102 per tonne as of this morning, big-name mining shares remain well up since early November.

Here's how the big three iron ore giants have performed since 1 November as at Monday's close:

  • Rio Tinto Ltd (ASX: RIO) shares have gained 28%
  • BHP Group Ltd (ASX: BHP) shares have gained 18%
  • Fortescue Metals Group Ltd (ASX: FMG) shares have gained 41%

With that said, all three of these ASX 200 mining stocks are well into the red over the past week's trading.

That's because they all derive more than half of their annual revenue from iron ore.

And traders are getting more pessimistic about the outlook for demand out of China.

As for what to expect next in 2023, here's what the analysts at Citi are forecasting.

What can ASX 200 mining stocks expect from the iron ore price in 2023?

According to Citi analyst Wenyu Yao, investors in ASX 200 mining stocks should be prepared to see the iron ore price potentially fall to US$90 per tonne in 2023 before finding support.

That's due to lower steel production out of China's steel mills amid narrow profit margins.

According to Yao (courtesy of The Australian):

We have been cautious on China's steel demand and iron ore amid an uneven economic recovery and heightened policy risk, though things have unravelled sooner than our base case. We see potential risk for further downside below $100 a tonne if steel demand fails to show meaningful improvement.

Of course, the Chinese government might step in with some incentives to re-energise the markets.

Lacking that, however, Yao said, "Without meaningful stimulus, any major turnaround in steel demand from major end use sectors would likely be delayed."

Yao added:

The shoe seemed to be finally dropped for iron ore as operating rate at blast furnaces has rolled over as well as hot metal productions.

Open interest remains elevated in iron ore, suggesting further room to go from current level.

And the lower production out of China's steel mills is likely to take some time to have an impact. Yao expects the reduced production to offer "cost support" for iron ore at US$90 per tonne.

That further 11% slide from today's iron ore prices could throw up some more headwinds for the ASX 200 mining stocks in 2023.

"The weak steel demand and steelmaking margins have started to negatively feed through into the iron ore market as hot metal production growth started to roll over and port inventory started to build," Yao concluded.

"Liquidation of speculative positions may have expedited the downside move."

How have BHP, Fortescue and Rio Tinto shares been tracking longer term?

All three of the ASX 200 mining stocks are well up over the past six months, with iron ore trading above its late October levels.

Over the past full year, BHP shares are down 3%, Rio shares have gained 4% and the Fortescue share price is up 5%.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

a sad looking engineer or miner wearing a high visibility jacket and a hard hat stands alone with his head bowed and hand to his forehead as he speaks on a mobile telephone out front of what appears to be an on site work shed.
Resources Shares

Down 14% in 2024, why is the BHP share price sliding again today?

ASX 200 investors are bidding down the BHP share price on Wednesday.

Read more »

A mining employee in a white hard hat cheers with fists pumped as the Hot Chili share price rises higher today
Resources Shares

These ASX 200 mining stocks could rise 40% to 50%

Analysts think these miners are dirt cheap at current levels.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

Fortescue share price leaps 5% as electric machinery makes a milestone

Fortescue is charging ahead with its electric mining ambitions.

Read more »

rising mining asx share price represented by happy woman miner in hard hat
Resources Shares

Why the BHP share price crushed the benchmark this week

BHP shareholders enjoyed a rewarding week.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Dividend Investing

Here is the profit forecast to 2026 for BHP shares

Let’s unearth how much profit this miner could make.

Read more »

Female miner standing next to a haul truck in a large mining operation.
Resources Shares

Is the worst of the selling now over for ASX iron ore shares?

ASX iron ore giants like BHP, Rio Tinto and Fortescue rebounded this week after falling hard in 2024.

Read more »

Three satisfied miners with their arms crossed looking at the camera proudly
Resources Shares

Why are ASX 200 mining shares smashing the benchmark on Wednesday?

Rio Tinto, BHP and Fortescue shares are all charging higher today.

Read more »

Two miners standing together.
Resources Shares

Why is the South32 share price getting battered today?

ASX 200 investors are bidding down South32 shares today.

Read more »