It was a great morning for Aussie iron ore companies Atlas Iron Ltd [ASX:AGO], Champion Iron Ltd [ASX:CIA] and Fortescue Metals Group [ASX:FMG].
All three traded up 9.1%, 6.1% and 3.5% respectively.
In fact, Fortescue was one of the most traded stocks on the ASX today. But why did investors focus on iron ore miners today?
What happened to the iron ore miners?
Rather than company announcements, all three companies are benefiting from offshore decisions.
As reported by the Australian Financial Review:
‘China will use infrastructure spending, private sector investment and business tax cuts to keep the economy growing around 6.5 per cent “or higher” this year as Premier Li Keqiang stressed in a keynote speech that stability was the government’s “overriding” priority ahead of November’s leadership reshuffle.’
The government plans to maintain high levels of infrastructure spending. The government hopes it will offset the slowdown in housing construction.
All this is likely to drive up iron ore demand. Increasing infrastructure spending will likely mean more steel. More steel means more iron ore. And that’s great for Atlas, Champion and Fortescue.
What now for the iron ore price?
The price of iron ore hit a high of $69.70 a tonne in April 2016.
It was great for iron ore miners. It meant they could sell inventories at a higher price, increasing their margins.
If China’s demand for iron ore continues, it could again be great for iron ore producers. Year-to-date, iron ore has climbed more than 18%, to $92.46 a tonne. If the commodity continues to climb, you’ll likely see further share price appreciation for iron ore stocks.
Junior Analyst, Money Morning
PS: We likely won’t see another turnaround in resources like we did in 2016. And if we do, it could be a long time from now. Unless commodity prices suddenly move higher, earnings will likely stagnate.
That’s why some investors prefer the smaller end of the market.
Smaller miners like Dacian are a riskier investment — there’s no running away from it. But they can potentially grow earnings 10-fold in a short space of time. Resource specialist Jason Stevenson is no stranger to explosive resource stocks.
In his advisory service, Resource Speculator, Jason has made gains of 142%, 145% and 242%.
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