Why are the BHP and RIO share prices lower today?
Shares in mining giants BHP, Rio Tinto and Fortescue Metals have climbed 35-45% in the last 12 months.
Australia’s biggest miners have been on a strong run in recent months, which has in part helped push the benchmark ASX indices to their peak. On Thursday, shares in BHP (ASX: BHP) were down 1.2% to $53.44, Rio Tinto (ASX: RIO) slipped 0.5% to $133.75 while Fortescue Metals Group (ASX: FMG) had lost 1.1% at $23.83.
Why are BHP and RIO stock prices down?
The big miners have benefited from an extended run up in iron ore prices since April, with the commodity continuing to trade above US$200 a tonne since that period.
That means iron ore prices have been running at double the levels from a year ago, and this has directly boosted the bottom line of the miners, as was recently reflected in the record half year profits of Rio Tinto.
However, analysts have warned that these elevated levels cannot continue for long and this may be starting to get reflected on the ground. Overnight, spot iron ore prices eased 0.5% to US$183.15 a tonne. In fact, iron ore is now in bear market territory, having fallen nearly 23% from its record high of US$237.57 in May.
The key steel-making ingredient has now stayed well below the US$200 a tonne level since 28 July after China announced it would focus on reducing emissions in key regions by cutting steel output amid a slowdown in global manufacturing.
Outlook remains bullish
That has prompted some profit booking by traders following the strong run up in mining stocks in recent months. The 3 iron ore miners have surged 35-60% over the last 12 months and each of the stocks has hit its 52-week high over the past week.
Despite the spate of negative news flow, the near term outlook for the miners remains bullish. While analysts expect iron ore prices to eventually slip close to US$100 a tonne, this is not likely to happen anytime soon as global supply concerns persist.
Estimates from the federal government indicate that iron ore prices are set to ease from their current highs over the second half of 2021, although they are expected to stay above US$100 a tonne until late 2022.
Last week, Rio Tinto more than doubled its profits and analysts expect similar numbers from BHP and Fortescue Metals when full-year profits are announced later this month. That would translate into bumper dividend payments for their shareholders, just as it has for Rio Tinto investors.
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