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Why are the BHP and RIO share prices rebounding?


Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals have climbed 12-15% over the last month and continued their strong gains today.

Mining shares are underpinning the gains on the ASX on Thursday, with BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) among the best performers, rising between 1.8% and 3.3%.

Even a smaller player like Mineral Resources (ASX: MIN) had notched up gains of 2.5%, at the time of writing.

Why have the BHP and RIO stock prices lifted?

Mining shares have lifted after spot iron ore prices jumped 2.3% in the previous session to a 4-month high of US$131.60 a tonne.

Prices for the key steel-making ingredient have been on the mend over the last several weeks and have now rebounded around 25% over the past month.

The recent gains have largely been driven by hopes about recovering demand based on the likelihood of improved steel production after restrictions on factory activity after the Beijing 2022 Winter Olympics next month.

The most-actively traded stainless steel contract on the Shanghai Futures Exchange jumped 5.3% to the equivalent of US$2,812.39 per tonne, with analysts expecting restocking demand before the upcoming holiday period could shore up iron ore prices.

In recent days, prices have also received a boost on reports of bad weather halting operations at iron ore mines in Brazil, which will have an impact on the overall supply for several weeks.

Improving outlook?

The recent gains are a welcome break from the swift drop in iron ore prices during the second half of 2021, which led to the big miners facing downgrades from analysts over concerns about the sustainability of their record profits.

But the tide could be turning, with Goldman Sachs saying Australia's major diversified miners appear "undervalued".

GS analyst Paul Young noted that BHP and Rio Tinto currently trade around 4 times their earning (EBITDA), compared to historical multiples of 6-7 times.

On a free cash flow yield basis, they are trading at 11-12%, below the 15-year historical average of just 7-8%.

Among the factors benefiting the diversified miners are the recent gains in copper prices.

Overnight, copper prices broke through US$10,000 a tonne for the first time since October, amid renewed supply fears as inventories dwindle.

Industrial metals have seen gains in recent weeks as concerns ease over economic growth in top metals consumer China.

Meanwhile, BHP’s unified listing on the ASX is also expected to drive up demand for the stock due to its likely increased weightage in the flagship market indices.

Considering buying mining shares?

If you are 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. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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