What’s behind the bounce in the FMG and BHP share prices?
Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals have lost 1-10% of their value over the past 3 months.
Iron ore miners make up the top 4 most traded shares on the ASX on Tuesday, with Fortescue Metals Group (ASX: FMG) leading the pack with gains of nearly 8%. BHP (ASX: BHP) and Rio Tinto (ASX: RIO) are also up more than 3% while even smaller player Mineral Resources (ASX: MIN) notched up a 2% lift, at the time of writing.
What is boosting mining stocks?
The main reason is likely the sharp jump in iron ore prices overnight. According to Fastmarkets MB, prices for benchmark 62% fines were trading at US$95.63 a tonne, up 4.3% from Friday’s closing. Singapore iron ore futures also rose 1.9% to US$96.30 a tonne on Friday.
The gains follow signs of an improvement in consumption of industrial metals in the world’s largest consumer China.
Recent data shows that apparent demand for 5 main steel products has gone up for 2 consecutive weeks and last week was up 4.2% from early November.
That is an encouraging indicator for demand of the key steel-making ingredient that is one of the biggest export earners for the Australian miners.
Steel demand in China is heavily influenced by its massive property sector, and the debt crisis surrounding property giant Evergrande Group had heavily impacted sentiment. Since managing to avoid default last week, market confidence in the sector’s ability to manage its debt obligations has returned, helping keep the iron ore price above the US$90 a tonne level generally.
Investor sentiment in the miners has also been boosted by BHP, the world’s biggest resources company, late on Monday sealing the deal to merge its petroleum division with oil and gas giant Woodside (ASX: WPL).
Under the deal terms, which were first announced in August, Woodside will own 52% of the combined entity while BHP shareholders will hold 48% of the merged company that will have a market value of over $40 billion.
The 2 companies also approved the US$12 billion Scarborough and Pluto-2 projects, which would be Australia’s biggest gas development in a decade.
While BHP shareholders will benefit from the economies of scale from the merged entity, it leaves the parent company to focus on its global mining interests and also helps ward off the significant pressure from investors over environmental and sustainability concerns from the fossil fuel operations.
Investors are hoping that will provide a boost to the share price of the Big Australian, which now shows barely any change over the past 12 months.
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