Why one top broker remains bullish on Australia’s big three miners

We unpack recent market data from the Metals Market Index and look at why Macquarie continues to favour FMG, BHP and Rio Tinto.

Iron ore prices remain elevated, with the 62% Fe Fines spot price closing out the day at US$87.72 per tonne.

In other areas of the market, iron ore inventories at Chinese ports have slowly declined since mid-February, dropping a further 0.75% to 109.34 million tonnes, for the week ending 20 March, according to the Metals Market Index (MMi).

Steel inventories have fallen even faster mind you, dropping 4.11% to 32.44 million tonnes, for the week ending March 20, according to the MMi.

Analyst thoughts

Speaking of these evolving market dynamics, Macquarie Wealth Management this week noted that the recent draw-down in steel inventories was likely ‘driven by a demand uptick on perceived accelerated start-up of construction sectors.’

Adding to that, Morgan Stanley recently argued that it expects Chinese steel demand will remain elevated as a result of ‘robust growth in infrastructure projects this year.’

‘As China is gradually returning to work, steel demand is improving, with steel inventories now declining and daily rebar transaction volumes approaching normal peak season levels,’ the investment bank further said.

Airy commodities and bullish outlooks

As iron ore prices continue to float around multi-year highs – and with markets buoyed by aggressive central bank policies and government stimulus commitments – it should come as little surprise that some of the world’s largest iron ore miners (many listed on the ASX) have performed strongly in recent times.

Indeed, by the close of Thursday’s session, Fortescue had seen its share price rise 2.94%; Rio Tinto had gained an impressive 5.14%, while mining heavy-weight BHP Group finished out the day down 2.01%.

More broadly speaking, though the big three miners have seen their share prices decline over the last month, they have nonetheless outperformed the broader benchmark in relative terms over that period.

Even when considering such declines, Macquarie Wealth Management has remained bullish on Australia’s big three iron ore miners, with the investment bank noting that elevated iron ore prices continue to bode well for BHP, FMG and Rio Tinto’s FY20 earnings outlook.

‘The Iron-ore miners are generating strong cash flow at spot prices,’ the investment bank said.

As a consequence of all this, Macquarie has retained its Outperform rating on all of Australia’s big three miners.

Internationally, Brazilian mining giant Vale – listed on the NYSE – saw its share price surge 7.34% to US$8.04 per share on 25 March. Pre-market data however suggests that Vale is set to open lower when US markets commence trading.

Providing an insightful take on commodity markets, the MMi yesterday wrote:

‘Strong bullish sentiment pushed both seaborne and port stock prices higher today [25 March], with SGX swaps and DCE iron ore futures following suit.’

However, speaking to the ever-changing implications of the coronavirus pandemic, it was flagged that:

‘Indian and South African ports have announced closures to prevent the virus spreading,’ with it being added that: ‘Mills preferred mainstream, medium-low grade products from Australia, potentially boosting physical port stock prices.’

How to trade the big three miners

What are your thoughts on the iron ore market: will prices hold up or are they set to decline? You can trade any of Australia's big three miners – both up and down – through IG’s world-class trading platform today.

For example, to buy (long) or sell (short) FMG using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Fortescue Metals Group’ or ‘FMG’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

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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