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FMG, BHP Group and Rio Tinto share prices surge as iron ore goes parabolic

Will iron ore prices remain higher for longer or are we close to the top?

Iron ore prices have surged in the last week off the back of Chinese production cuts and the speculation of further issues between Australia and China.

Despite the second of those catalysts, Australia’s big three iron ore miners – Fortescque Metals Group, BHP Group and Rio Tinto – saw their share prices surge on Monday off the back of this run-up in the commodity.

IG’s iron ore instrument surged on Monday, gaining 7.7% or around 85 points, to trade above the 1300 handle – as of 12:27PM Melbourne local time.

Industry data paints a comparably bullish picture. From the May 7 Metals Market Index report, freight rates and steel prices were all up dramatically, while iron ore and steel inventory levels both fell.

Specifically, for the week ending May 7, iron ore inventory at Chinese ports dropped 1.34% to 122.54 million tonnes, while steel inventories in China dropped almost a full percent to 18.67 million tonnes.

FMG, BHP and Rio Tinto Share Prices ↑

Against this backdrop of rising iron ore prices, investors on Monday bid Australia’s iron ore miners higher: Fortescue Metals Group (ticker: FMG) was up over 6%, BHP Group (ticker: BHP) had gained close to 3% and Rio Tinto (ticker: RIO) was up 3.13%.

Are we now looking at a situation in which iron ore prices will remain higher for longer? The previous assumption from many brokers seemed to be that mid-term, iron ore would soon fall back below the US$100 per tonne mark.

That hasn’t played out yet. Rather, the market has persisted in finding new catalysts to push the price of the commodity higher.

Iron Ore Price: Possible Catalysts

According to CRU Group’s steel analyst, Erik Hedbord, the recent bullish price action in iron ore markets has been driven by a ‘flight to quality’ of sorts.

‘Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise with steel supply being restricted,’ Mr Hedbord said.

There may also be a geopolitical catalyst in play, with the South China Morning Post arguing that the recent run-up in iron ore prices is based on the:

‘Speculative premise that the price of iron ore imported into China would soar if the Beijing were to cut back or cut off Australian supplies.’

Over 50% of global iron ore exports are from Australia.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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