Why the BHP, Rio and FMG share prices are rising
Shares in mining giants BHP, Rio Tinto and Fortescue Metals have climbed between 10%-16% in the last 6 months.
As the benchmark ASX indices hit fresh highs, a key contribution to the rally has come from the market favourite iron ore miners. On Tuesday, shares in the country’s three biggest iron ore miners were again trading higher, with BHP (ASX: BHP) up 1% each to $49.46, Rio Tinto (ASX: RIO) rising 1.9% to $127.34 while Fortescue Metals Group (ASX: FMG) lifted 2.3% at $23.75.
Why are BHP, Rio and FMG stock prices on a high?
After a wobbly few weeks, the miners have been boosted by a fresh run-up in iron ore prices in the last few weeks. Investors now seem more assured the extraordinary gains will remain for some more time.
Last week, iron ore futures on China’s commodities exchanges again climbed above the US$220 a tonne mark, their highest level in more than 3 weeks, and are nearing the record US$233 a tonne hit earlier in May.
A key reason for the increase has been the growing steel demand. Global crude steel demand has exceeded 2 billion tonnes for the first time, driven by infrastructure spending in China and the US. China accounts for nearly half of global crude steel production and is hungry for more iron ore to feed its furnaces.
Concerns over tight global supply have also supported prices. Iron ore stocks at China’s ports fell to a 4-month low last week. Adding to this, Brazil’s Vale halted production at two mines in its home country and decommissioned a dam over safety concerns.
Another factor that is assuaging nerves in the market has been China’s reluctance to tamp down on steel production as its economy rebounds from the COVID-19 disruption.
Last month, Chinese authorities stepped up their rhetoric on high commodity prices, warning commodity businesses against market manipulation and raising export tariffs on some steel products.
This had led to concerns that inflation pressures might prompt monetary policy tightening, but last week, China’s central bank governor said inflation was under control.
Overall, this means demand for Australian iron ore is expected to remain steady in the medium term.
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.
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