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Why are the Fortescue Metals (FMG) and BHP share prices rebounding?

Posted: 23 May 2022 1:29 pm
News
FMG-shares-23May_1800x1000_Finder

Shares in the top iron ore miners have jumped 18-30% over the last 6 months, continuing their strong trading today.

Shares in iron ore major Fortescue Metals Group (ASX: FMG) are the best performing among the top traded shares on the ASX on Monday. The stock was up 4.3% to $21.01 at the time of writing.

This momentum was carried through to its main rivals with BHP (ASX: BHP) and Rio Tinto (ASX: RIO) up 1.9% and 2% respectively.

What is pushing up the FMG and BHP stock price?

The gains among the top miners come amid a solid lift in benchmark iron ore prices. Futures in Singapore surged more than 6% on Friday while prices on the Dalian commodity exchange were up nearly 3% to put iron ore at US$134.36 a tonne.

The rebound comes after China cut its benchmark rate for mortgages in a sign of its support for the giant economy that is seeing a slowdown after escalating lockdowns in major cities to control the spread of COVID infections.

Chinese banks cut their key interest rate for long-term loans by a record amount on Friday, a move that would reduce mortgage costs and help counter weak loan demand.

A prolonged property slump combined with the recent COVID-zero strategy has heavily slowed demand in the construction sector, but traders are betting the latest move by the authorities will help bolster steel consumption.

Cloudy outlook

China's iron ore imports in April fell 13% from the same period a year ago to 86.06 million tonnes, indicating the extent of the problem.

However, iron ore stockpiles at major Chinese ports have dropped for an eighth consecutive week, according to the latest data, which will come as a relief to the sector following concerns about sluggish consumption.

It should also come as welcome news to the major Australian iron ore miners because China buys nearly three-fourths of Australia's ore.

The extended run up in prices during 2021 immensely benefited the big miners and was reflected in record profits and dividend payouts. Now, investors are worried about how much impact there will be in case of a slowdown in the steel making ingredient's biggest market.

This comes when rising cost pressures and labour shortages in Western Australia are beginning to weigh on the sector. All 3 big miners – BHP, Rio Tinto and Fortescue Metals – have indicated higher costs in recent updates.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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