Aussie iron ore producers are one of the big winners today.
But it’s not just the majors.
Smaller iron ore companies are also up. Champion Iron Ltd [ASX:CIA] jumped 6.78% and Mount Gibson Iron Ltd [ASX:MGX] is up 3.68% today.
Why are ASX iron ore producers shares up today?
Mainly because of hits to both supply and demand.
As I wrote on Friday, iron ore prices have jumped higher after Brazilian iron ore giant Vale downgraded their production forecast to 300–305 million tonnes per year from 310–330 million tonnes after suffering disruptions from the pandemic. You can read more on this here.
Iron ore prices boosted higher after the announcement with the Dalian to around US$145 a tonne on supply concerns.
And then there’s demand. Demand has been ramping up with China increasing their spending on infrastructure to fuel their recovery. China is the largest iron ore importer in the world with most of their imports coming from Australia first and Brazil in second place.
As Reuters wrote recently, China’s stockpiles have been declining as it heads into winter:
‘China’s steel inventories have declined substantially from a seasonal record high of 12.92 million tonnes to just slightly above the five-year seasonal average of 10.46 million last week, OCBC Bank economist Howie Lee said.
‘Strong end-user demand and the recent shutdown of some plants in China’s top steelmaking city of Tangshan may have led to the rapid drawdown in stocks, Lee said.’
That is, we have a perfect combination of less supply and increasing demand.
What could happen next?
Looks like we’ll continue to see high iron ore prices in the short term, with Vale’s supply still affected from the pandemic…as long as demand from China stays strong.
Higher iron ore prices have given Fortescue, in particular, quite a year, with its share price up 115% in the last 12 months. It’s also meant some nice dividends for shareholders. Fortescue’s trailing annual dividend yield is at 5.90% and Rio’s is at 5.37%, for example.
If you are interested in dividend plays, check out Greg Canavan’s free report ‘Five Dividend Stocks set to Thrive in the Post-Pandemic Era’.
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