The boss of Rio Tinto Ltd (ASX: RIO) has given some commentary on the Chinese economy that could suggest a positive outlook for ASX iron ore shares.
China is the biggest buyer of iron ore in the world, so what happens there is essential for the iron ore price. It has a significant bearing on how much profit ASX iron ore shares can generate, owing to the nature of commodities and the laws of supply and demand.
Certainly, positive developments in the Chinese economy could be very helpful for Rio Tinto, BHP Group Ltd (ASX: BHP), Fortescue Metals Group Ltd (ASX: FMG), Mineral Resources Ltd (ASX: MIN), and Champion Iron Ltd (ASX: CIA).
What did the Rio Tinto boss say about China?
As reported by the ABC, China’s economic growth is slowing but there hasn’t been any large packages of stimulus as yet.
However, the ABC reports the Rio Tinto boss is “cautiously optimistic” about the Asian superpower and hopes that China will unleash more cash than the “small measures” delivered so far.
Recent data on China’s manufacturing sector has shown that it contracted for the fourth month in a row.
Rio Tinto CEO Jakob Stausholm said:
I’m very encouraged by hearing that the government in China acknowledge that there are opportunities to strengthen the economy.
And experience tells us that when they acknowledge that there is an issue that they know exactly how to address the issue.
We don’t know what the measures are.
We don’t know how much measures, but I remain cautiously optimistic.
Just because they haven’t told the exact measures doesn’t mean that nothing is happening. I think we will see that there will be a measured response.
What could happen to the iron ore price?
When the iron ore price goes up, it essentially means an ASX iron ore share is getting more revenue for the same amount of production. Costs don’t change much month to month, so a boost in revenue is great for profit. A fall in the iron ore price is likely bad news for the share price, profit, and dividends.
The ABC reported Stausholm said while steel demand in China is likely to decline during this decade, he was still positive:
Well, so far the demand has been good for iron ore. We can certainly not complain throughout the year and also now.
So there’s not some big warning signals. But it goes without saying that the health of the Chinese economy is important, not just for our iron ore business, but for our whole business.
Rio Tinto share price snapshot
Since the start of 2023, Rio Tinto shares haven’t moved much. The company’s share price is only down 0.5%. According to Commsec, the ASX iron ore share is currently valued at more than 11x FY23’s estimated earnings with a possible grossed-up dividend yield of 7.5%.
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