The world’s leading iron ore miners are bracing for their weakest earnings in five years as market conditions deteriorate. A sluggish Chinese property sector, which has historically driven significant demand for steel, continues to weigh on prices, while new supply entering the market in 2025 further dampens the outlook.

Australia’s Westpac has forecasted a decline in iron ore prices through the year, attributing the trend to record inventory levels and the anticipated supply influx from Guinea’s massive Simandou project, which is set to begin production. This additional output is expected to contribute to a surplus in the global market, placing further downward pressure on prices.

BHP, the world’s largest miner, is set to report its half-year results on Tuesday, with analysts predicting a 23% drop in underlying earnings. This would mark its steepest first-half earnings decline in six years. Analysts also expect BHP’s dividend payout to be at the lower end of its policy range, potentially at 50% of earnings. Factors influencing this conservative approach include rising capital expenditure, increasing net debt, and an uncertain economic outlook for China.

Rio Tinto and Vale Face Profit Declines

The world’s two largest iron ore producers, Rio Tinto and Brazil’s Vale, are scheduled to report their financial results on February 19. Market expectations suggest that Rio Tinto will post a 6.4% decline in annual profit, with estimates from Visible Alpha placing earnings at around $11 billion, its lowest annual profit in five years. Despite the drop, Rio Tinto’s full-year dividend is expected to remain at the upper end of its payout range, supported by its strong balance sheet position, according to analysts at Macquarie.

Vale’s earnings are also projected to decline, with its fourth-quarter results anticipated to reflect a 10% decrease. The ongoing weakness in demand from China, which remains a crucial driver of the global iron ore market, continues to pose challenges for the company.

Fortescue Metals Group, the world’s fourth-largest iron ore producer, is expected to experience an even more significant downturn. Estimates suggest a roughly 50% decline in underlying half-year earnings. The company, like its larger counterparts, faces the dual challenge of softening demand and increasing supply pressures.

The broader impact of declining iron ore prices has been reflected in the stock market. Mining stocks suffered a sharp decline of 19% in 2023, significantly underperforming the ASX200 benchmark, which saw a 7.5% gain over the same period. While some analysts believe that the sector now presents value opportunities, particularly with shares trading at a discount relative to the broader market, significant headwinds remain.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.

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