Why the FMG share price is leading the mining rebound today

Posted: 1 June 2021 12:40 pm
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Shares in mining giant Fortescue Metals have climbed 22% in the last 6 months.

Australia’s third largest iron ore miner Fortescue Metals Group (ASX: FMG) is seeing solid gains in early trading on Tuesday, leading a broad rebound in mining shares. At the time of writing, Fortescue shares were up 3.2% at $23.14, while bigger rival Rio Tinto (ASX: RIO) was up 1.1% to $125.05. Even smaller player Mineral Resources (ASX: MIN) joined the party, rising nearly 2% to $46.25.

Why are the FMG and RIO stock prices lifting

The mining companies have been boosted by the sharp rebound overnight in iron ore prices on the Chinese commodity exchanges.

According to MetalBulletin data, benchmark iron ore prices jumped 5.9% in Monday’s session to close at US$198.83 a tonne and are again within touching distance of the US$200 level.

Chinese authorities have been alarmed at the recent surge in the key steelmaking ingredient that took prices to a record US$233 a tonne last month, prompting tough talk from regulators as well as an increase in export tariffs on some steel products and a lift in margin requirements for iron ore futures contracts.

While this has brought down the price below US$200 a tonne, it is proving difficult to sustain given the rising demand for Australian iron ore as steel production in the world’s second largest economy continues to grow at record levels.

FMG key beneficiary

With a C1 cost of US$14.90 per wet metric tonne (wmt), Fortescue is one of the lowest cost iron ore producers in the world. It is also continuing to see strong sales, with shipments for the first three quarters up 2% from FY20. As a result, it would be one of the major beneficiaries of the ongoing spike in iron ore prices.

The company had posted a 66% jump in its half year profits in February, helping ramp up dividend payouts. Full year results are again expected to reveal a bumper profit, and some analysts are forecasting a full-year dividend of between $3.50 and $4.00 a share.

Meanwhile, the company last week shared a promising update on its Iron Bridge project in the Pilbara, which will lift production and capacity as well as improve the quality of Fortescue’s product mix.

The company’s share prices peaked at $26.40 in January but has since lost more than 10% of its value amid volatile iron ore prices. Some investors therefore believe there is scope for the stock to move higher, given that gains from the current surge in prices have not likely been factored in.

Considering buying FMG shares?

If you are keen to buy shares in Fortescue, 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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