Why have the BHP and Fortescue (FMG) share prices jumped?
Shares in the top iron ore miners have recorded solid gains of between 18–27% over the last 6 months, continuing their strong growth today.
Shares in the iron ore majors are among the top traded and best performing stocks on the ASX on Friday.
At the time of writing, Fortescue Metals Group (ASX: FMG) was up 3.3% to $21.29, while larger rivals BHP (ASX: BHP) and Rio Tinto (ASX: RIO) had climbed 2.4% and 2.8% respectively.
What is pushing up the FMG, RIO and BHP stock prices
Shares in the top miners are reflecting a sharp rebound in benchmark iron ore prices, which jumped 5.1% to $US142.2 a tonne.
The change in momentum comes after China announced this week that the financial hub of Shanghai would reopen from COVID lockdowns that have extended over 2 months.
The iron ore price had been retreating in recent weeks as Chinese downstream demand remained muted, with investors fretting over signs that the world's second-largest economy could contract in the second quarter due to COVID-fuelled slowdown, with some indicators starting to weaken sharply since March.
Chinese Premier Li Keqiang alluded to this in late May when he said at a national meeting that China was facing bigger economic difficulties than in 2020.
But the latest easing of restrictions is expected to boost downstream consumption, which was halted for months and had disappointed steelmakers as they were unable to cash in on the traditional peak season for construction projects.
Latest data is also more encouraging, with China's factory activity in May declining slower than expected, although economic growth in the second quarter still remains in doubt.
Steady outlook
This comes as welcome news to the major Australian iron ore miners because China buys nearly three-fourths of Australia's ore and stronger demand signals continued high profits for the Big Three.
The extended run up in prices during 2021 immensely benefited the big miners and was reflected in their record profits and dividend payouts.
Now, investors are worried about the impact in case of a slowdown in iron ore's biggest market.
Still, iron ore prices have stayed higher than many analysts expected. The market broadly expects the price of the key steel making ingredient to stay above $US100 a tonne at least until mid-2023.
Although rising cost pressures and labour shortages in Western Australia are beginning to weigh on the sector, analysts have a positive outlook on all three big miners.
Analysts at JP Morgan became the latest to affirm that view, after reinstating coverage of BHP shares with a 'neutral' stance and a price target of $46 per share.
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