Why are the BHP and FMG share prices slipping again today?

Posted: 7 September 2021 1:35 pm
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Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals are still up 10-20% over the past 12 months.

In early trading on Tuesday, 4 out of the top 5 traded shares on the ASX happen to be iron ore miners. Unfortunately, not for the right reasons. Shares in BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) are trading between 1.5-3% lower, with smaller player Mineral Resources (ASX: MIN) also feeling the impact, slipping 2.6%.

What is weighing down the BHP and FMG stock prices?

Overnight, iron ore prices plunged to their lowest level in 9 months. Spot prices for benchmark 62% fines (the iron ore powder most commonly exported to China from Australia) were down another 9.3% to US$131.50 a tonne, the lowest point since December 2020.

According to MetalBulletin, industry sources blamed the slump on Chinese authorities taking a stricter stance on steel production curbs and the start of sintering restrictions, weakening domestic demand.

The big iron ore miners have benefited from an extended run up in prices of the steel making ingredient this year, which had largely traded above US$200 a tonne between April and August due to a spike in demand in China and global supply constraints.

This directly boosted the bottom line of the miners, was reflected in record profits for BHP, Rio Tinto and Fortescue Metals and resulted in dividend payouts ballooning during the August earnings season.

Cloudy outlook

But that dream run seems to have definitely come to an end, at least for now. Iron ore prices are now nearly 45% lower from their peak in May. Analysts had been warning that the elevated price levels for iron ore could not be sustained for long as it was making the steel industry uncompetitive.

Still, the decline was expected to be more gradual. Estimates from the federal government had indicated that iron ore prices were set to ease over the second half of 2021, although they are expected to stay above US$100 a tonne until late-2022.

Analysts at UBS on Tuesday said the key concern at the moment remains weak China pig iron production (which defines demand for iron ore). The investment bank’s China property team last week cut their forecast for new starts in 2021 to -9% and expect -7% in 2022.

Meanwhile, the rapid slide in prices will result in a number of investors booking profits or exiting positions in the shares of the iron ore miners. It is also likely to result in analysts having to revise their earnings estimates for these companies, which in turn could fuel further selling.

That would mean a reversal of the share prices of the 3 iron ore miners, which hit their peaks in recent weeks.

Considering buying mining shares?

If you are still keen to buy shares in BHP, Rio Tinto or Fortescue Metals, 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.

Choose from the dozens available for Australian investors. Compare the features and fees from the plethora of trading platforms available.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

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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