BHP, Rio, and FMG Share Prices Up on Iron Ore Price Surge, Chinese Stimulus Hopes

At time of writing, the share prices of BHP Group Ltd [ASX:BHP], Rio Tinto Ltd [ASX:RIO], and Fortescue Metals Group Ltd [ASX:FMG] are all up.

In early trading the FMG share price gained the most, up 1.27%, while the BHP share price was up .49%, and the Rio share price up a slight .2%.

The gains come on the back of fresh stimulus hopes out of China as Chinese policymakers indicated they would keep growth in a ‘reasonable range’.

As you can see below, pure play iron ore miner FMG has outperformed BHP and Rio over the last six months:

ASX BHP, ASX RIO, ASX FMG Share Price Chart

Source: tradingview.com

Between July and early September, some of the steam came out of the iron ore market. We look at the latest iron ore news and why China could be forced to reign in some of its stimulus measures next year.

Discover why some of Australia’s most popular mining stocks could take a massive hit in 2020.

Iron ore miners up today — BHP, Rio, and FMG share prices all benefit from rising iron ore price

Shares in the three companies rose in value today, after the iron ore price rose 5.5% to US$94.35 on Monday.

You can see the chart for benchmark 62% fines below:

Iron Ore Price Chart

Source: Business Insider

After going as high as US$120 a tonne in July, the iron ore price has since fallen off.

The last 48 hours, however, have spurred investor sentiment.

Vale production outlook trimmed, China stimulus on horizon

Early this month, Vale SA trimmed its iron ore production outlook for the first quarter of 2020.

The world’s largest iron ore producer reduced it from a range of 70–75 million tonnes to 68–73 million tonnes.

So it seems the Brazilian supply issue is still affecting the market.

Adding further impetus to the recent surge in iron ore prices is a growing market expectation that China will reduce their growth in the coming months.

As Reuters reports:

The 17-month long trade dispute has heightened the risks of a global recession and fueled speculation that China’s policymakers could unleash more stimulus as growth in the world’s second-largest economy cooled to nearly 30-year lows.

It’s a bit of a perverse system where bad news is good news.

But China has showed a willingness to put more money into the system with Reserve Requirement Ratio (RRR) cuts in the past.

There could be a limit to Chinese stimulus

Both Chinese government debt to GDP and Chinese household debt to GDP have been steadily rising.

These now sit at 50.5% and 53.6% respectively.

While these are low by Western standards, there is a growing concern about how China funds its growth.

Its corporate debt was sitting just above 160% in 2017 — which far outstrips the rest of the world as you can see below:

Rising Corporate Debt Chart

Source: https://chinapower.csis.org/

So even though the government and individual consumers may be fine for now, a sharp decrease in iron ore prices, or a slowdown in global growth more generally, could have drastic flow-on effects to their economy.

If you want to learn more about the variety of factors impacting the future share prices of BHP, Rio, and FMG, we have an excellent document available. It’s free and it will give you an inside look at the iron ore market and where the RBA sees iron ore prices heading over the next two to three years. Download now.

Regards,

Lachlann Tierney
For The Rum Rebellion


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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