It has been a disappointing start to the week for three of Australia’s biggest mining companies.
In afternoon trade the BHP Group Ltd (ASX: BHP) share price has fallen 2.5%, the Fortescue Metals Group Limited (ASX: FMG) share price is down 4.5%, and the Rio Tinto Limited (ASX: RIO) share price has tumbled 3.5% lower.
Why are BHP, Fortescue, and Rio Tinto sinking lower on Monday?
Investors have been heading to the exits on Monday after iron ore prices tumbled notably lower for the second successive day on Friday.
According to Metal Bulletin, the price of the benchmark 62% iron ore fines dropped 2.2% to US$101.60 a tonne. This latest decline means that it has now fallen just under 6.5% since hitting a five-year high at the start of last week.
It wasn’t just the benchmark fines that came under pressure. The price of both low grade and high grade ore dropped lower on Friday as well. Low grade 58% fines dropped 2% to US$88.55 a tonne and high grade 65% fines fell 1.1% to US$117.70 a tonne.
Unfortunately for iron ore producers, Chinese futures are pointing to further declines on Monday when the market re-opens.
Why is iron ore under pressure?
According to Reuters, iron ore and other steelmaking raw materials have fallen amid signs of weaker short-term demand for steel. This follows the release of economic data which revealed that China’s factory activity shrank more than expected last month.
Helen Lau, metals and mining analyst at Argonaut Securities in Hong Kong, told Reuters: “China’s steel PMI slipped to the contraction zone along with China’s official manufacturing PMI. We expect steel companies’ profitability will quickly deteriorate going forward.”
If the slowdown in steel rates persists, it is likely to drag on demand for iron ore and put pressure on prices and ultimately the shares of BHP, Fortescue, and Rio Tinto which have been flying high thanks to iron ore’s incredible run in 2019.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019