China, iron ore prices could trouble miners

Economic troubles in China, a falling iron ore price and cost pressures loom as problems for the state’s big iron ore miners as their shares dive.

The iron ore price dropped to near $US100 per tonne this morning, down a reported 8 per cent.

That compares to an average price of about $US140/t for the first half of this year, according to Rio Tinto, which released its half yearly results today.

China’s GDP contracted by 2.6 per cent in the June quarter, according to Commsec.

That was worse than a forecast drop of 2 per cent.

The world’s second biggest economy was 0.4 per cent bigger in June 2022 than it had been a year earlier, against analyst expectations of 1.2 per cent growth.

Commsec senior economist Ryan Felsman said worries about the country’s property market were weighing on the price of iron ore, which hit its lowest level since November today.

But he said the Chinese government would accelerate infrastructure construction to boost activity in its economy.

Iron ore miners had a tough day on the national bourse.

Mineral Resources and Fortescue Metals Group were among the top 5 biggest falls on the ASX200 today.

Shares in Chris Ellison-led MinRes were down 7.5 per cent to $43.38; while Fortescue Metals Group took a 6.2 per cent hit to finish the week at $16.33.

With about 1.1 billon shares under his control, executive chair Andrew Forrest’s paper wealth took a hit of more than $1 billion over the day.

About $670 million of market capitalisation was wiped from MinRes.

The two biggest iron ore producers were also down.

BHP shares fell 3.5 per cent to be $36.10 at the close of trade, down from as much as $53 in April; while Rio Tinto stock was changing hands at $93.27, a fall of 2.9 per cent.

Rio Tinto’s quarterly report said it produced 78.6 million tonnes of iron ore in the Pilbara in the quarter, up 10 per cent from the three months to March.

Across the half as a whole, shipments were lower, however.

Rainfall, labour constraints, COVID-19 disruption and mine replacement project delays all had caused shipments to fall 2 per cent to 151 million (100 per cent share).

Performance in the next half will depend on the ramp-up of Gudai-Darri and Robe Valley, availability of skilled labour and management of cultural heritage, following changes to the Cultural Heritage Act, Rio said.

Operating costs for 2022 would be as much as $US 21 per tonne, the company said.

First ore from Gudai-Darri was delivered in June, with the mine to hit full capacity next year.

Rio also highlighted one of the many costs of accelerating inflation, in this case the closure liabilities of its operations.

That would be as much as $400 million before tax, Rio said.