BHP, FMG shares: Are more losses in store?

Australian mining heavyweights BHP and Fortescue have been pressured by iron ore’s deepening sell-off.

  • BHP (ASX: BHP) share price plummeted to 10-month low on Monday (20 September)
  • Fortescue Metals Group (ASX: FMG) dropped to A$14.70 per share
  • Iron ore sustained its rout as China further reins in steel production
  • Feeling bearish or bullish about BHP and FMG shares? Open an account with us to start trading both stocks today.

Why did mining stocks take a beating?

Shares of Melbourne-based BHP and Perth-headquartered Fortescue Metals Group (FMG) had been tracking the weakness in iron ore.

As at 10:50 AEST on Tuesday (21 September 2021), BHP’s ASX-listed stock was trading at A$37.84, inching up 0.8% on the day.

BHP had plunged to a 10-month low on Monday, closing at A$37.53. The shares have lost 14.9% over the past month.

Meanwhile, its fellow iron ore producer FMG’s share price on Tuesday similarly staged a mild recovery from a low base. The counter was up 2.1% day-on-day to A$15.02 as at 10:50 AEST, although compared to a month ago it has slid about 23%.

Iron ore’s price slump would deal a heavy blow to the world’s top miners, which have enjoyed bumper profits during the rally in the first half of the year, Bloomberg reported.

Sentiment among research teams was mixed, for both iron ore majors. As at Monday, seven analysts said ‘buy’ on BHP shares in Australia, five saw the stock as a ‘hold’, while one suggested ‘sell’. Their 12-month target price averaged A$49.72, according to Bloomberg data.

Among the most optimistic on BHP were Macquarie and Berstein with ‘outperform’ calls, targeting A$56 and A$45 respectively.

As for Fortescue, nine analysts recommended ‘sell’, seven suggested ‘buy’, while four gave ‘hold’ ratings. On average, their target price stood at A$20.01, Bloomberg data showed.

Those more bullish on FMG included Macquarie, which had an ‘outperform’ call and targeted A$25 a share, and JPMorgan, with an ‘overweight’ rating and A$26 target. The counter attracted ‘sell’ calls from Goldman Sachs and Morningstar, with targets of A$18 and A$13 respectively.

Iron ore price continues to tank

Iron ore - a key ingredient for steelmaking - extended its price slide on Monday to drop below US$100 a tonne for the first time in more than a year.

It followed China’s tightened restrictions on industrial activity in some provinces, in a bid to clean up the heavy-polluting sector.

In Singapore, iron ore futures sank as much as 11.5% on Monday, but regained some momentum later in the day.

Bloomberg reported that prices have collapsed about 60% since a record high in May.

Demand from China, the world’s largest steelmaker, is declining as the country imposes more production curbs to meet a target for lower volumes, amid its aim for carbon neutrality by 2060. A downturn in the property market has also dampened steel demand.

UBS analysts, noting that iron ore’s fall ‘has played out faster than expected’, cut their price forecast by 12% and now predict prices could average US$89 a tonne next year.

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