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Why the BHP, RIO and FMG share prices have slipped

Posted: 29 June 2021 12:42 pm

Shares in mining giants BHP, Rio Tinto and Fortescue Metals have climbed between 30%-60% in the last 12 months.

The benchmark ASX indices were on Tuesday trading at their lowest level in 5 sessions, largely due to bearish sentiment in global markets. The decline locally has partly been on the back of the market favourite iron ore miners.

At the time of writing, shares in the country’s 3 biggest iron ore miners were trading weaker, with BHP (ASX: BHP) slipping around 1.4% to $47.72, Rio Tinto (ASX: RIO) down 1.3% to $124.42 while Fortescue Metals Group (ASX: FMG) had lost 0.7% at $22.80.

Why are BHP, RIO and FMG stock prices down?

The miners have benefited from a sharp run-up in iron ore prices in the last 2 months. On Tuesday, iron ore futures on China’s commodities exchanges closed 0.6% higher at US$220.05 a tonne and the price has held steady around this level over the last week.

That is also reflected in the share prices of these companies, with all 3 stocks rising around 3-4% in the last week alone.

But investors are wary that iron ore prices are unlikely to sustain at current levels for long, and some are looking to book profits from the recent gains.

Estimates from the federal government on Monday 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.

In its latest Resources and Energy Quarterly, the department of industry and resources also cut its export volume expectations for 2021 to 860 million tonnes from 897 million tonnes because of a weak January-March quarter and the prospects for supply disruptions at replacement projects by the 3 big Pilbara producers.

Price concerns

A broker note from UBS last week provides some basis for investor concerns. UBS analysts downgraded Rio Tinto shares to a "sell" rating with a 12-month price target of $104 a share.

The move was due to the likelihood of a steady decline in iron ore prices in the coming months. The analysts believe the steel making ingredient could slip to US$90 a tonne over the next 12 months as Chinese regulators look to ease commodity prices, stockpiles at Chinese ports rise to above average levels, and supply comes online from Brazilian mines or mid cap producers.

Currently, iron ore contributes the bulk of profits for BHP and Rio Tinto, and most of the revenue and profitability for Fortescue.

Even before the current spike, BHP and Rio had lifted their profitability by around 20% from a year ago, while Fortescue posted a 66% jump in its half year profits in February, helping ramp up dividend payouts.

But any sharp fall in the iron ore prices could result in dividends from the miners being impacted.

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.

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