Is this as good as it gets for FMG, Rio and BHP share price?

At time of writing the share price of Fortescue Metals Group Ltd [ASX:FMG], Rio Tinto Ltd [ASX:RIO] and BHP Group Ltd [ASX:BHP], are all trading down. The FMG share price has been the hardest hit, losing 5.22% and trading at $7.715.

From a top on 3 July, all three have experienced jitters over the last month:


The FMG, Rio and BHP share prices are strongly correlated as they are all heavily focused on iron ore. But is this as good as it gets for these companies? We look at what has been happening with Chinese iron ore demand, the trade war and the possibility of further declines in the share prices of the trio.

Iron ore prices beginning to lose their lustre and as result, BHP share price down

The iron ore story over the past eight months began with a tragedy in Brazil, when a tailings dam broke at a Vale S.A. iron ore operation in Brumadinho in January.

Vale is the largest producer of iron ore and iron ore pellets in the world. Iron ore prices subsequently rose and kept rising to the benefit of Australian iron ore miners like BHP.

Iron ore’s remarkable rise was underpinned by growth in the Chinese construction industry, which in turn was driven by various stimulus measures that the Chinese government rolled out.

Iron ore prices are up more than 50% since the end of 2018.

This led to Rio reporting underlying earnings growth of 12%, with a record interim  and special dividend of $2.5 billion or $3.0758 a share.

This is a bonanza for investors in the iron ore space, but what’s around the corner?

Brazil iron ore back online, Trump tariffs and slowing Chinese growth

These three things will likely play a role in future iron-ore prices, and the prospects for continued share price growth for the trio of mining companies looks to have waned.

Today Reuters reported the following:

Benchmark spot 62% iron ore for delivery to China SH-CCN-IRNOR62 fell 2.5% to $118 a tonne on Thursday.

This was driven by new numbers out of Brazil:

Brazil’s iron ore exports rose 16.6% in July from the previous month to 34.3 million tonnes.

So Vale S.A. is back at it, and what’s more, Trump’s latest twitter burst has shaken markets once again.

This is what the US president fired off today:

Source: Australian Financial Review

Bloomberg has previously forecast what is increasingly looking like a ‘Scenario 3’ outcome, where Chinese GDP gets hit worse than US GDP:

Source: Bloomberg

With Chinese GDP being impacted by the trade war, you could expect Chinese construction to taper off, lowering demand for steel and subsequently having a negative flow on effect to iron ore prices.

So the combination of Brazil, Trump and reduced Chinese growth do not point towards a strong outlook for the future earnings of companies like FMG, Rio and BHP.

We look at three different unique investments that have come to the fore in our free US-China trade war report. Each is well worth your consideration well before the 1 September deadline that Trump has set.


Lachlann Tierney

For Money Morning

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science 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 Ryan Dinse. Lachlann is involved in two publications:

Money Morning Australia