Why are the FMG and BHP share prices edging higher?

Posted: 29 November 2021 2:26 pm

Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals have lost 2-7% of their value over the past 12 months, so why are they bucking the trend today?

Iron ore miners are the exception in a sea of red on the ASX on Monday. While the overall market has slid nearly 1%, shares in Fortescue Metals Group (ASX: FMG) have jumped 2%, with BHP (ASX: BHP) and Rio Tinto (ASX: RIO) following with gains of 1.5% and 1% respectively.

What is boosting the mining stocks?

Global markets have been in turmoil since late last week after the new Omicron variant of the coronavirus was first detected in southern Africa and a number of countries, including Australia, quickly moved to ban flights from the region, threatening the budding global economic recovery.

But iron ore seems to have bucked that trend, with prices rising around 10% in the past week.

Prices for benchmark 62% fines settled at US$94.89 a tonne on Friday.

Investors are betting that demand for the key steelmaking ingredient will remain firm as it has throughout the pandemic.

It could, in fact, improve as most countries shift industrial production into top gear in an effort to recover from the economic impact of the slowdown over the last 18 months.

The market also seems to be counting on some form of economic stimulus in China, the biggest consumer of iron ore, as Beijing looks to prop up its economy and calm fears over its debt laden property sector that has been an engine of growth so far.

There are already signs that steelmakers in China are set to lift production after rigorous curbs in the past few months following government orders.

Stable prices

That could all help stall the faster-than-expected drop in iron ore prices over the last few months and help lift returns for the big miners.

Estimates from the federal government had expected iron ore prices to ease over the second half of 2021, but stay above US$100 a tonne until 2022.

That projection looks more likely given the trajectory of iron ore prices over the past 2 weeks.

Meanwhile, Fortescue Metals is testing a new iron ore price discovery mechanism that will run auctions on the similar digital system that helped lithium producer Pilbara Minerals (ASX: PLS) nearly double the price for its product in September.

Fortescue Metals has struck a preliminary deal with commodity trading platform provider GLX Digital to sell iron ore on its GLX Connect platform, with the miner to also take a small shareholding in the technology company, according to the Australian Financial Review.

Australia’s third biggest iron ore exporter traditionally suffers a price disadvantage because of the discount applied to its lower grade ore, so the new platform may help address that shortcoming. Fortescue Metals has also expanded its product range, allowing it to sell smaller quantities to new customers.

Shares of the big 3 iron ore miners have lost 2-7% of their value over the last 12 months.

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