The share price of iron ore producer Fortescue Metals Group Ltd [ASX:FMG] has risen sharply today on renewed optimism for Australia’s resource sector.
FMG shares remained largely unaffected through the pandemic-induced market crash in March and climbed rapidly with the price of iron ore.
The broader resources sector on the ASX is also outperforming the market today, with the [XMJ] climbing 243 points or 1.7%.
At time of writing FMG shares are up 6.31% or $1.07 to trade at $18.02 per share.
Department of Industry say ‘inflection point’ has been reached
There were no announcements out today from the iron mining giant, with the share price purely riding the wave of optimism.
According to the Australian Financial Review, mining and energy investment in Australia is likely to rise for the second consecutive year in 2021.
Revealed: The 2020 ASX Blacklist — Stocks to Reconsider. Download your free report.
The Department of Industry said an ‘inflection point’ in resources-sector investment had been reached when $30 billion of projects were approved in 2019.
That value has risen to $39 billion in the year to October 2020.
The renewal of interest in Australia’s resources sector marks a swift turning point after a long, steep decline that set in after the resources boom peaked nearly a decade ago.
In a report published by the department today, they said:
‘Our outlook for resources and energy investment suggests that 2019 represented an inflection point in the mining investment cycle.
‘The value of committed resource and energy projects – those where a final investment decision has been taken – increased by 30% over the past year to $39 billion. This growth in value follows six years of decline.’
What’s the outlook for the Fortescue Metal share price next year?
The iron ore price has recovered nicely after a steep decline in 2019.
Source: Trading Economics
Iron ore futures rose to $120 per tonne in November, supported by resilient demand from steel producers.
FMG and RIO reported that Chinese iron ore consumption in the third quarter of 2020 remained at record levels mainly due to the nation’s infrastructure and property boom.
However, with the shaky nature of the Australia–China relationship, FMG shares are exposed to significant political risk.
Another point to keep in mind is the number of new iron mines currently under construction.
When operational, these new mines could push the iron ore price lower as supply better meets demand.
The current 12-month outlook could see iron ore slump to US$106/tonne.
For now, strong iron ore prices have also helped to strengthen the Aussie dollar. Since the market crash in March, the Aussie has increased by about 30% against the US dollar. Understanding where the Aussie dollar is heading will allow you to adjust your investment strategy early for optimal performance. Click here to download your free copy of ‘Will the Aussie Dollar Enjoy a Post-Pandemic Resurgence?’
For The Rum Rebellion