Australia’s Iron Ore Producers Higher on Supply Concerns

Australia’s large iron ore players are up today.

At time of writing, BHP Group Ltd [ASX: BHP] increased by 4.59%, Fortescue Metals Group Ltd [ASX: FMG] is trading 4.07% higher, and Rio Tinto Ltd [ASX: RIO] is up by 3.85%.

Australia is the largest iron ore exporting country in the world, followed by Brazil.

Why are iron ore producer shares up today?

Overnight iron ore prices jumped 3.5% on both supply and demand changes.

For one, China is starting to ramp up their demand for iron ore as they reopen their economy.

On the other hand, Brazilian iron ore producer Vale is suffering production disruptions because of the pandemic. At the end of April, the company already had to revise their production guidelines for the year 2020 down to 310–330 million tonnes from their previous forecast of 340­–355 million tonnes.

Last year, when a dam burst in Brazil causing the closure of several mines and affecting Vale’s production, iron ore prices spiked up to $120. A hit to iron ore supplies usually boosts prices.

What could happen next?

While Brazil is suffering disruptions to their iron ore production, so far Australian producers are coping with the outbreak.

The fact that our largest iron ore export market, China is turning to infrastructure spending to stimulate the economy could support iron ore demand. Yet this is at a time when China is already running on high debt, and COVID-19 is causing a global economic slowdown that could affect demand in the future, pushing prices down.

Also, there’s no telling how the trade spat between China and Australia could affect iron ore, though with Vale having production problems, it’s likely that the high demand for Australian iron ore from China will continue.

And of course, there is the risk that at any time there could be a resurgence of the virus that closes up the Chinese economy again, which would decrease demand.

So far, iron ore prices are rising in the short term.

Yet in the report ‘Aussie Iron Ore Crash 2020’ Rum Rebellion’s Lachlann Tierney explains why we could see lower iron ore prices and offers three other investment ideas that could fare better.

To download his free report click here.


 Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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