The Fortescue Metals Group Ltd [ASX:FMG] share price is trading up today on the back of higher iron ore prices.
Iron ore prices surged 5% to reach US$123.47 a tonne, which is good news for the Australian iron ore producer. At time of writing, Fortescue’s shares were trading at $16.78, up 2.95% from yesterday.
Brazilian iron ore producer Vale said they’ve had to suspend operations at Viga concentration plant following a court order from the Jeceaba municipality.
While Vale confirmed that activities at the Viga mine are still going, the company estimates this will decrease their iron ore production by around 11,000 tons per day. Vale said they’ll be contesting the decision.
Earlier this year Vale had to revise down their 2020 production guidelines from 340–355 million tonnes to 310–330 million tonnes. Mainly because of disruptions from the pandemic.
Vale’s troubles pushed iron ore prices higher back then too. Brazil is one of the main iron ore exporters into China. They had a 21% share of iron ore imports into China in 2019, while Australia held a 62% share.
What could happen next for FMG?
While supply is taking a temporary hit with Vale, the main question in regards to iron ore is demand.
Iron ore prices have remained strong on the back of China’s rebound in demand. According to Reuters, between January and August this year China imported 759.91 million tonnes of iron ore, an 11% increase from the same period last year.
But stockpiles are starting to build up in Chinese ports.
China has been pushing for a recovery through stimulus spending in infrastructure. The question is if they can keep it up, especially when there’s risk of a second wave and an increase in cases around the world which could create a further economic slowdown.
Fortescue’s shares are up 57% so far this year on the back of iron ore prices.
Strong iron ore prices have also helped to strengthen the Aussie dollar. So far since March, the Aussie dollar has increased by about 30% against the US dollar.
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 explores this question.
To download this free report, click here.