Iron ore futures have fallen to US$99 a tonne in Singapore as of December 27, 2024, marking the lowest level in over five weeks due to poor demand from China [a9730ae9]. This decline is part of a broader trend, with iron ore prices slumping 29% throughout 2024, largely attributed to a slowdown in China's economy and rising supplies from Australia and Brazil [a9730ae9].
China's industrial profits have dropped for the fourth consecutive month in November, further indicating economic weakness [a9730ae9]. Despite this, steelmakers' profitability has improved slightly, suggesting some resilience within the sector even as overall industrial profits decline [a9730ae9].
The ongoing economic challenges in China have significant implications for the ASX 200 Index, which has experienced a slight negative performance of 0.29% year-to-date, with a decline of 1.38% [1931efd6]. The falling iron ore price has been a major factor in this decline, as it directly impacts the earnings of ASX 200 iron ore companies, including Rio Tinto Ltd, BHP Group Ltd, and Fortescue Metals Group Ltd [1931efd6].
As the iron ore price dropped from above US$140 per tonne at the start of 2024 to around US$110 per tonne earlier this year, analysts have expressed concerns about the potential for further declines [46f42b8b]. The International Monetary Fund (IMF) has also indicated expectations of continued price drops, which could further impact the earnings and share prices of these companies [1931efd6].
Despite the challenges, some experts believe that certain stocks, like Fortescue, may be oversold and could present attractive entry points for investors [46f42b8b]. The upcoming Chinese Communist Party Congress is anticipated to address plans for reform and modernization, which could provide some policy support for the Chinese property sector and potentially stabilize demand for iron ore [46f42b8b].
Rio Tinto's share price has dipped more than 6% since May 2024, with UBS rating the company as neutral and setting a price target of $127. They predict Rio Tinto can generate net profit after tax (NPAT) of US$12.1 billion in FY24 and US$12.3 billion in FY25 while maintaining annual dividends per share of US$4.48 in FY24 and US$4.56 in FY25 [bf4852a2]. However, the valuation does not appear to be at bargain levels, and a further drop in the share price could present a better investment opportunity [bf4852a2].
Overall, the combination of falling iron ore prices and the slowdown in China's economy poses risks to ASX 200 shares, particularly in the iron ore sector. Investors will need to closely monitor developments in China and their potential impact on global demand for commodities and financial markets [1931efd6] [46f42b8b] [bf4852a2] [a9730ae9].