Iron Ore Miners Have a Good Day as Vale Provides Output Update

The major iron ore miners have had a good day today. At time of writing the share price of BHP Group Ltd [ASX:BHP] is up 1.1%, while Fortescue Metals Group Ltd [ASX:FMG] is up 2.97% and Rio Tinto Ltd [ASX:RIO] is up 1.71%.

The gains can be attributed to two events in two countries – China and Brazil.

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Iron ore miners benefit from Vale production forecast

On Thursday, it was revealed that the mammoth Brazilian mining company Vale SA would, in a worst case scenario, have production lowered by 75 million tonnes.

This has flow on effects as the diminished global supply is expected to push prices further up in the short-term.

Business Insider quotes one analyst as saying:

The price implications from Vale’s guidance and commentary are significant … given the physical nature of iron ore markets, the impending physical tightness to face iron ore markets strengthens our conviction that iron ore prices will rise above $90 a tonne in the short term.’

Following a major mining disaster in Brazil, Vale SA has been forced into closing a number of its mines.

Chinese Premier comments also a factor

Demand for iron ore is largely dependent on the strength of the Chinese economy.

In a speech given on Thursday, Chinese Premier Li Keqiang was bullish about Chinese growth prospects.

He revealed that March had seen rapid growth in imports, exports and freight volumes.

His remarks may have buoyed iron ore markets, but they must be taken with a grain of salt.

Industrial profits in January and February fell by 14%, the worst fall in 10 years.

Included in the industrial profits number, is steel mill margins — a major factor in the choice of grades as well as spot price.

Should you invest in iron ore miners?

I believe that iron ore may see a peak shortly and then get locked in a slide for the rest of the year.

The Brazilian production cuts account for between 5–6% of the seaborne market and I think the market has overreacted to the cuts.

Of BHP, Fortescue Metals and Rio Tinto, Rio Tinto has the most attractive price to earnings ratio (P/E) of 8.6 and a dividend yield of around 4.3%.

That being said, it may also be wise to cast your net wider.

Champion Iron Ltd [ASX:CIA] looks attractive with an 82% return over the year, net revenues of CA$147.5 million and cash on hand of CA$185.4 million.

It operates out of Quebec.

Regards,

Lachlann Tierney,
For Money Morning

PS: If you want the inside scoop on 10 mining companies that could be set for a bumper year, download this free report to learn more.


Lachlann Tierney is a writer for Money Morning and has been investing for nearly a decade. With an MSc from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently, he has been working with Phil Anderson and Terence Duffy. They have three publications:

Phil Anderson’s Time Trader
Cycles, Trends & Forecasts
Money Morning Trader


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