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Why the RIO and FMG share prices are among the worst performers today


Shares in iron ore miners BHP, Rio Tinto and Fortescue Metals have slid for the second straight session.

Shares in Australia’s biggest miners could be nearing the end of their golden run. For the past several months, shares in BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have helped power the ASX to its highest level. On Friday, all 3 stocks were down 2-2.5%, marking their second straight session of sharp decline.

What is weighing down the RIO and FMG stock prices?

Overnight, iron ore prices plunged to their lowest level in 4 months. Spot prices for benchmark “62% fines” – the iron ore powder most commonly exported to China from Australia – were down 6.5% to US$171.55 a tonne, the lowest point since April. The most active iron ore futures on the Dalian Commodity Exchange slid as much as 5.6% to US$154.54.

Analysts blame the sudden decline on weakening domestic demand and China’s plans to reduce emissions by cutting steel output in key manufacturing regions.

The 3 biggest miners have benefited from an extended run up in prices of the steel making ingredient this year, which has largely traded above US$200 a tonne for the last 4 months due to a spike in demand in China and global supply constraints.

This has directly boosted the bottom line of the miners, and was reflected in Rio Tinto’s record half year results last week, when its profits more than doubled and its dividends ballooned. Traders are expecting rivals BHP and FMG to post similarly strong numbers.

Dream run ending?

Analysts have been warning that the elevated price levels for iron ore cannot be sustained for long as it was making the steel industry uncompetitive.

ANZ commodity strategist Daniel Hynes says the fall in iron ore prices shows no signs of slowing, as the demand outlook deteriorates. He noted the China Iron and Steel Association saying there will be more reductions in crude steel output resulting from environmental checks.

Even estimates from the federal government had indicated that iron ore prices were set to ease over the second half of 2021, although they are expected to stay above US$100 a tonne until late-2022.

That might indeed be coming true. Iron ore has now been well below the US$200 a tonne level since 28 July, and prices are now down more than 27% from the record high of US$237.57 in May.

This is prompting some investors to partly book profits from the rapid run up 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.

Considering buying mining shares?

If you are still 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. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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