The iron ore price is almost in a bear market. BHP and Rio Tinto are in a correction, what is ahead?

The iron ore price reset continuing, with the price of seaborne (iron ore fines) down 3.5% on Monday at $115.65 (its lowest since September 2023) itss having an impact on BHP, Rio Tinto and Fortescue Metals shares. The iron ore price is now down 18% from January’s $140 highs as demand has not yet picked up after Lunar New year. The concern is that iron ore price doesn’t look quite like it has bottomed. Iron ore’s weakness puts a 20% retracement from the January closing high, potentially on the cards. Beyond that, some people are questioning the price could test the $100/ton level.

On one hand, investors are worried that China's property crisis remains, and there is little faith that more substantial stimulus is around the corner. So traders are awaiting stimulus for the narrative to turn around. Secondly,holdingsof iron ore at ports in China have been rising over the recent months, and inventories are now back to at their highest level since April last year. The reason for this is because local governments in China have so far appeared reluctant or unable to borrow more. That's fueling expectations Beijing may pick up the slack and take on more debt. Meanwhile, Moody’s Investors Service withdrew credit ratings from 10 Chinese developers on Friday.

But on the positive side, March and April are usually busy months for construction in China. Secondly, Vale SA, the world’s second-largest iron ore producer (behind BHP) said it's looking to boost iron ore sales outside of China and sell to Europe, India, the Middle East and Southeast Asia. Vale’s head the iron ore market remains tight and there is nonew supply coming this year on to the market. So Vale will look to increase the main capacity increase, at a time when Australia’s production will be little changed, and India is focused on its domestic market. With that in mind, you wouldn’t expect the iron ore price to remain almost in a bear market.

It was almost pleasing to hear thatVale, still sees China being resilient, with the energy transition and infrastructure industries propelling demand. Vale’s Marcello Spinellisees upside for iron ore, depending on Beijing's commitment to stimulus, which could have an effect in the second half of the year.