FMG, BHP & Rio Tinto shares: can the iron ore price hit US$100/t?

We examine some key commentary around the iron ore market as well as look at today's price action from Australia's big three miners.

Iron ore: price speculation in focus

Are iron ore prices set to return to the US$100 per tonne mark?

That was a key suggestion, from an article published in the Australian Financial Review today, titled: ‘Iron ore nears four-month high on shipment worries.’

Here, it was noted that:

‘The spot price of iron ore, as reported by Fastmarkets MB, has now rebounded 23 per cent from its November 11 low, and appears to be heading back towards the $US100 a tonne mark.’

At the time of writing, the 62% iron ore Fe Fines spot price traded at the US$94.44 per tonne mark; well ahead of its one-year low of US$75.42 per tonne.

FMG, BHP and Rio Tinto share prices in focus

Mind you, bullish speculation didn’t seem to help the majority of Australia’s mainstay miners today: Rio Tinto (ASX: RIO) stuttered at the open, dropping 0.63% during the morning session. Fortescue Metals Group (ASX: FMG) didn’t fare much better – as the stock flirts with all-time-highs it also fell at the open – currently trading around the $10.95 per share mark.

By comparison, BHP Group (ASX: BHP) traded higher today, up 0.40% a little after noon.

Looking at the breakdown of earnings between the big three, as a pure-play iron ore miner, FMG derives 100% of its revenues from iron ore. Rio Tinto, while not as reliant upon iron ore as Fortescue, still leans heavily on the mainstay commodity when it comes to profitability. In H1 2019 the company reported underlying earnings (EBITDA) of US$10,758m, of which, US$7,552m was generated from the miner’s iron ore operations.

BHP Group (ASX: BHP) – by comparison to FMG and RIO looks the least sensitive to the gyrations of the iron ore market – with a still significant 48% of Group earnings (EBITDA) derived from the company’s iron ore operations in FY19.

The market scoop

Taking a step back from the current iron ore price, and looking at commentary from the Metals Market Index (MMi) from January 14 – we gain some insight into where iron ore prices may head next.

Specifically, MMi yesterday wrote that:

‘The latest data from the Customs shows that China imported 101.303 million tons of iron ore and concentrates in December 2019 and imported 1.069 billion tons of iron ore and concentrates from Jan. to Dec. in 2019.’

As a consequence of this, MMi further commented that:

‘Considering the overall supply of imported iron ore will not vary greatly and low inquiry from mills, iron ore spot price has tendency to rise instead of fall recently.’

Finally and looking at iron ore inventories at Chinese ports, for the week ending January 10, MMi reported that inventories fell 1.45% – to 113.74 million tonnes.

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