What is lifting the BHP and FMG share prices?

Posted: 28 March 2022 12:55 pm

Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals Group have surged 17–32% over the last 6 months.

Heavyweight mining shares are powering the main ASX indices higher on Monday, with all 3 top miners BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) rising around 2% in early trading.

Why have mining stocks been on a bull run?

Despite volatility in recent months, mining stocks have been relatively more consistent over other sectors.

Most of this is related to the sharp rebound in iron ore prices. Since hitting a low of US$87 a tonne in November 2021, prices of the key steelmaking ingredient have regained momentum and are currently up 1.16% at US$150.17 a tonne on top of a 4% spike on Friday.

Russia's invasion of Ukraine has proven to be a tailwind for the sector too. While neither is a major iron ore producer or consumer, the conflict has resulted in commercial shipping in the Black Sea coming to a standstill, causing a major supply disruption globally.

Chinese steel demand is also showing signs of a recovery after a collapse at the end of last year, even as Chinese mills wrestle with supply shortages because of COVID-related disruptions.

The combination of the factors has helped lift benchmark iron ore prices to their highest level since September last year.

Earnings upgrades

Investors have already seen the big miners deliver record profits and dividend payouts last year and are hoping that the current run-up in prices will have a similar impact on the companies' bottom lines.

A record interim dividend payment of US$1.50 per share that BHP shareholders received on Monday underlines that sentiment.

Recent stock-specific news has also bolstered the already upbeat sentiment. This includes BHP ending its dual-listing on the London Stock Exchange, resulting in higher weightage on indices on the ASX, Rio Tinto diversifying into battery minerals and Fortescue's recent focus on green energy.

It has led analysts to swiftly upgrade their view on the top miners

UBS has upgraded Rio Tinto and Fortescue to "neutral" and increased the target price by 16% and 5% respectively. This goes after UBS raised its iron ore price forecasts to US$135 a tonne for 2022, from $110 a tonne previously.

Analysts at Citi also recently forecast an average price of US$136 a tonne in 2022, while Fitch is predicting US$120 by the end of the year. Both had previously estimated prices to average between US$100 and US$110 a tonne, meaning the gains will be reflected in company profitability.

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Considering buying mining shares?

If you are keen to buy shares in BHP, Rio Tinto or Fortescue, you can invest through an online share trading platform.

Keep in mind that not all platforms offer the same list of stocks. Some offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

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