Bumper demand for iron ore has sent shares in Australia’s biggest miners to trade at record levels this year and led analysts to ponder whether another commodities supercycle has emerged.
In January, Fortescue Metals shares closed at a record high, a feat promptly repeated by BHP Group in February and then by Rio Tinto this month, as Australia’s global mining giants eclipsed the heights reached during the boom days of Chinese growth a decade ago.
The trio is set to prosper further as demand for iron ore is sustained, analysts predict, after shaking off concerns that a pollution crackdown in China would dampen orders from the country’s steel producers.
The steel mills in Tangshan, two hours south-east of Beijing, where Pilbara ore is smelted into beams to support apartment buildings and factories across the world’s most populous country, were forced this month to cut production to meet new emissions standards.
The concerns quickly dissipated, sending the price of iron ore up more than 4 per cent to above $US167 a tonne on Monday. The price is down slightly from a month ago, but the latest uptick marks a fourfold increase in five years and just over 10 per cent from the high achieved during the resources boom that peaked in 2011.
The jump in the iron ore price “is monstrously powerful for earnings for the miners,” said John Lockton, head of Australian equity strategy for Wilsons.
The materials sector has only lagged energy in profit growth for the year so far, pushing the S&P/ASX 300 metals and mining index, which tracks 47 listed companies, to a record high last month.
Macquarie analysts predict earnings for BHP and Fortescue will grow by nearly a fifth for the year to June and a tub-thumping 30 per cent for Rio Tinto in the year to December. This will push up the share price of each company by at least 35 per cent, according to the broker.
“Iron ore price buoyancy continues to underpin strong earnings upgrade momentum,” the analysts wrote.
The rise in the iron ore price has led analysts at Commonwealth Bank to wonder whether the global economy is entering a decades-long period of growth underpinned by strong demand for commodities.
“The surge in commodity prices over the last year has led markets to consider whether we are at the start of another commodity supercycle,” said Vivek Dhar, director of mining and energy commodities research for Commonwealth Bank.
Price growth for iron ore, copper and nickel could feed into a global stretch of demand that mirrors previous supercycles, such as the Chinese boom from the late 1990s or American industrialisation at the start of the 20th century.
This outlook may be too rosy, cautions Mr Dhar. A more likely scenario is a near-term uptick in demand as the global economy recovers from the pandemic.
“We think the rise in commodity prices over the last year is indicative of a cyclical recovery [rather] than a long-dated supercycle,” he said.
The three major Australian iron ore miners are among the four biggest producers in the world, and their fortunes have been helped along by trouble facing the fourth: Brazil’s Vale has faced a lull in production after the deadly mudslide two years ago at its Córrego do Feijao mine, limiting supply, and squeezing the global iron ore price higher.
The company has moved to bring new regions of iron ore online, but has faced regulatory challenges for the mines, which are remote, adding operational strain to export the commodity.
“There is some expectation that Vale will come back online this year, but it’s more difficult to get to port there, so access is an issue,” said Mr Lockton.
“I still think there is a reasonable chance we don’t get the supply coming on to the same degree consensus believes will happen,” he said.
BlueScope Steel, which was spun out of BHP nearly two decades ago, typically faces extra pain when the price of iron ore rises, but has jumped in market value and closed on Monday at its highest level since 2008.
“A high iron ore price typically is a negative for BlueScope,” said Mr Lockton. “But steel mills globally have struggled to keep up with demand.”
Fonte: Financial Review
