Shares in BHP, Rio Tinto, and Fortescue Metals group should continue running higher today with global iron ore prices hitting two-year highs in Asian trading yesterday after Chinese buyers returned to the market after last week’s holiday break.
Global iron ore prices have topped $US90 a tonne for the first time in two years as the confusion continues in the wake of the January 25 mine dam disaster in Brazil that has seen between 40 and 70 million tonnes of high-grade Brazilian ore from Vale taken off the market.
The global price was last at this level back in February 2017.
The Metal Bulletin index price for benchmark 62% (Fe, or iron oxide) ore delivered to northern China rose nearly 6% or $US5.05 yesterday to end at $US90.58 a tonne.
The Metal Bulletin price for 62% Fe Pilbara Blend Fines also rose by $US5.05 to $91.42 a tonne while there was a smaller $US2.64 a tonne rise in the Metal Bulletin Index price for 58% ore which ended at $81.38 (That’s the type favored by Fortescue and is up well over 60% since last November).
Shares in BHP were up 2% to $36.04 yesterday, the highest they have been since 2011. Rio shares rose 1.8% to $92.20 while Fortescue continued to surge with the shares up 3.5% to $6.25, a two year high.
Citi analysts last week raised its earnings forecasts for BHP and Rio by 44% and 19% respectively and said the iron ore price would hit $100 a tonne over the next three months.
“Though higher prices will incentivise production growth in a number of countries, it is increasingly likely that supply uncertainties and tail risks will trigger price spikes and leave average iron ore prices higher in an environment where spare capacity is limited and speculative forces are rampant,” Citi said.
For Australia, there’s the benefit of higher royalty payments for the financially embattled WA government, as well as a big boost for the Federal Government whose 2018-19 budget is based on an iron ore price of $US55 a tonne.