Why are the BHP and RIO share prices up 2.5% today?

Posted: 2 March 2022 12:42 pm
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Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals have been under pressure over the past few weeks, but reversed that trend today.

Mining shares were bucking the trend in a sea of red on the ASX on Wednesday, with top traded shares BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) all climbing more than 2.5% each at the time of writing.

Why have the BHP and RIO stock prices rebounded?

The top miners are back on a high after commodity prices have surged in recent days over concerns about supply disruptions following Russia's invasion of Ukraine.

While the conflict will directly affect supply of key commodities, analysts are expecting a wonder fallout due to stringent sanctions imposed by the Western allies on Russia, which will affect global trade.

Overnight, iron ore prices were up 3.8% to US$144.45 per tonne which now represents a more than 50% rebound since prices slipped below the US$90 level in November last year.

Prices have already been on a rebound due to concerns over labour shortages in Australia as well as hopes about recovering demand in key market China.

Although Russia and Ukraine are not major suppliers of iron ore to China, both countries usually export the steelmaking ingredient to other European countries, and the war could now lead to a global supply disruption.

Wary outlook

The recent gains are a swift change from the sharp 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.

Still, analysts are urging caution on the price outlook.

Australian miners have been hit particularly hard by labour shortages induced by COVID-19 restrictions.

Last month, Fortescue posted a 32% slide in first-half profit, hurt by higher material and labour costs, while BHP also flagged the impact of COVID-19 restrictions and significant adverse weather events in Western Australia.

Rio Tinto also revealed substantial cost increases at its flagship Western Australia iron ore operations, hit by a combination of closed borders and rising fuel prices and has warned of Pilbara iron ore unit cash costs for 2022 rising. Rio has previously forecast weaker-than-expected iron ore shipments for 2022.

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