Why the BHP, RIO and FMG share prices have surged today

Posted: 12 July 2021 2:07 pm
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Shares in mining giants BHP, Rio Tinto and Fortescue Metals have climbed 30%-60% in the last 12 months.

The Australian share market has started the new week on a high and a major reason for that has been the sharp gains in mining shares.

Shares in the country’s 3 biggest iron ore miners were among the best performing shares on the ASX on Monday, with BHP (ASX: BHP) up 3.3% to $51.13, Rio Tinto (ASX: RIO) leading by 2% at $127.92 while Fortescue Metals Group (ASX: FMG) had climbed 2.5% at $24.47.

Why are BHP, RIO and FMG stock prices on a high?

The iron ore miners, and indeed the wider materials sector on the ASX, are trading higher after China’s central bank on Friday announced it would cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps).

The surprise announcement by the People’s Bank of China (PBOC) would release around 1 trillion yuan ($155 billion) in long-term liquidity into the world’s second-largest economy to underpin its post-COVID-19 economic recovery.

That is good news for Australia’s iron ore miners with most analysts expecting the move will further raise Chinese demand for Australian iron ore, a key steel making ingredient, from the Asian country’s infrastructure and manufacturing sectors.

The PBOC last cut the RRR in April last year, when the Chinese economy was still badly affected by the coronavirus crisis. But since then the economy has staged a strong rebound, and is widely expected to grow more than 8% this year.

Elevated iron ore prices

Iron ore prices have already more than doubled from the levels 12 months ago due to ever increasing demand for steel in China, Australia’s biggest market, and mining and port disruptions in rival supplier Brazil that have limited global supplies.

On Friday, spot iron ore prices closed 0.8% lower at US$216.50 but have now stayed above the crucial US$200 a tonne level far longer than expected. The current move by the central bank means they will stay elevated for some more time to come.

Even before the current spike, the bumper prices had already resulted in BHP and Rio Tinto lifting their profitability by around 20% from a year ago. Fortescue Metals reported a 66% jump in its half year profits to $4.1 billion in February. This has allowed the 3 companies to sharply raise dividends.

At the same time, the 3 large miners have had spectacular success in cutting costs over the last 3-4 years. Analysts say that this means the major miners will post record profits when results are announced in August.

That is already being reflected in the share prices of the 3 major miners.

Over the last 6 months, BHP shares are up 37%, RIO shares rose 29%, while FMG shares have gained 60%.

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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