Why are the BHP and RIO share prices rebounding?

Posted: 7 January 2022 12:36 pm
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Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals have climbed 8-15% over the past month, although they remain volatile.

Iron ore miners BHP (ASX: BHP) and Rio Tinto (ASX: RIO) are among the top traded shares on the ASX on Friday.

The 2 stocks are up more than 2% each, while rival Fortescue Metals Group (ASX: FMG) is not far behind, having risen 1.5% by the time of writing.

Why have the BHP and RIO stock prices lifted?

Iron ore prices have been on the mend over the last several weeks and have now rebounded more than 20% this past month.

Prices for the benchmark 62% fines quality rose another 2.4% on Thursday to settle at US$127.58 a tonne, their highest level since mid-October.

The ascent has been driven by speculation about recovering demand for the steel-making ingredient in the world’s largest market, China.

A large part of the current moderation in demand is on account of Chinese authorities putting restrictions on factory activity to ensure clean air quality for the Beijing 2022 Winter Olympics next month.

Traders widely expect steel production to rebound after the games are concluded.

There are also hopes that the country’s troubled property sector, which is a major driver of steel production, will be able to manage its debt obligations, ultimately helping revive demand for iron ore in the medium term.

Market sentiment has been boosted by a statement this week by China’s Premier Li Keqiang emphasising the need to stabilise China’s macroeconomic situation in the first quarter of 2022.

Price outlook

That could help stall the swift drop seen in iron ore prices over the last 6 months and help prop up returns for the big Australian miners, which have recently faced downgrades from analysts over concerns about the sustainability of their profits.

The top 3 iron ore exporters benefited from an extended run up in prices beyond US$200 a tonne between April and August last year due to a spike in Chinese demand and global supply constraints.

It allowed them to deliver record profits and shower investors with their best ever dividends.

But based on the more gloomy market conditions that have followed, most brokerages cut their expectations in recent months for iron ore prices. Even the federal government lowered its estimates for iron ore prices, expecting them to drop below US$100 a tonne in 2022.

But some investors are now betting that numbers to be reported by the miners at their results in February will not be as bad as initially feared. That could reflect in better than expected profits and dividend payouts.

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