Why are BHP and Fortescue share prices running higher?
Shares in mining giants BHP, Rio Tinto and Fortescue Metals have climbed between 30% and 35% in the last 6 months.
Mining shares have always been a favourite in the Australian stock market but investors are finding even more reasons to pile into the sector.
The country’s three biggest iron ore miners are again on fire today, with BHP (ASX: BHP) and Fortescue Metals Group (ASX: FMG) up 1.7% each at $50.48 and $23.50 respectively, while Rio Tinto (ASX: RIO) had climbed 1.9% to $127.95, at the time of writing.
Why is the BHP and FMG stock price climbing?
The miners are being boosted by a sharp run-up in iron ore prices. On Monday, iron ore futures on China’s commodities exchanges ran up over 4% to US$217.
The immediate trigger was the release of April steel production figures by the world’s second largest economy. The data showed record production of 97.9 million tonnes, lifting total output in the January–April period by an astounding 16% to 375 million tonnes.
Investors are betting this will further raise Chinese demand for Australian iron ore, a key steel-making ingredient. Even before the current spike, iron ore prices had more than doubled from the levels 12 months ago due to ever-increasing demand for steel in the Asian country’s infrastructure and manufacturing sectors.
A series of mining and port disruptions in rival supplier Brazil are also limiting global supplies of iron ore, adding to the spark in prices.
The bumper prices have already resulted in BHP and Rio lifting their profitability by around 20% from a year ago. Fortescue reported a 66% jump in its half-year profits to $4.1 billion in February. The three companies also sharply raised their dividends.
Prices have steadily risen since then and given the supply limitations, are expected to continue at elevated levels until at least the end of September.
At the same time, the three large miners have had spectacular success in cutting costs over the last three to four years. Analysts say that means the major miners will post record profits when results are announced in August.
That is already being reflected in the share prices of the three major miners.
Over the last six months, BHP shares are up 34% and Rio Tinto shares rose 29%, while FMG shares have gained 36%.
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.
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