Fortescue Metals Group Higher on Iron Ore Exports (ASX:FMG)

It’s a sea of red out there on the ASX today, with very few (green) rising stocks.

Some of those rare green shoots are Australian iron ore miners.

Fortescue Metals Group Ltd [ASX:FMG] reached a new high today, with the share price hitting $15.56. At time of writing, shares are up by 0.52%. Rio Tinto Ltd [ASX:RIO] is up by 1%, while BHP Group Ltd [ASX:BHP] is down by 0.08%.

Why?

Iron ore prices have been inching upwards

Iron Ore Price Chart - Iron Ore Prices Impacting FMG Share Price

Source: Trading Economics

A reason for the surge in iron ore prices has been that the pandemic has disrupted Brazil’s iron ore giant Vale, who has struggled to maintain activities running. The company had to revise down their 2020 production guidelines in April to 310–330 million tonnes, from 340–355 million tonnes.

It follows after last year Vale’s production in 2019 was 21.5% lower than the previous year, after suffering disruptions from a dam bursting and bad weather, which drove iron ore prices up — as you can see in the graph above.

Another reason for the higher iron ore price is Chinese demand is rising.

Reuters reports today Chinese iron ore imports have increased by 16.8% in June to 101.68 million tonnes from the previous month. This is 35.3% higher than June last year.

China is the largest consumer of iron ore in the world. In 2019, over 60% of their imports came from Australia, with Brazil covering about 21% of the market.

Will the rally last?

It depends on if Brazil can continue production without disruptions. If so, the increase in supply will push prices downwards.

But also, on increasing demand to continue from China.

I’m sceptical.

Cases are surging around the world, which could once again damper global trade. Also, China may be showing signs of a recovery, but consumer spending, retail car sales, and residential property sales are all down.

So far though, an effect from higher iron ore exports has been the strengthening of the Aussie dollar against major currencies like the US dollar, the euro, and the pound.

How will the Aussie dollar move next?

Check out our latest report ‘Will the Aussie Dollar Enjoy a Post-Pandemic Resurgence?’ where Rum Rebellion editor Greg Canavan tackles this question.

To download his free report, click here.

Best,

Selva Freigedo,
For The Rum Rebellion

 


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 Port Phillip Publishing’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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