Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Iron ore is back despite warnings of its demise
Iron ore is back.
An unexpected recovery in the iron ore price has the industry punching the air in delight as its turnaround wasn’t expected for quite some time. It’s hard to believe such a recovery is taking place after iron ore’s recent crash.
Late last year, Chinese demand for iron ore surged on the back of rising steel consumption, coming out of the government’s stimulus response to the pandemic. Chinese steelmakers ramped up production, tightening the iron ore market and pushing the iron ore price to record high of US$214 ($291) per tonne. It came at the perfect time. The pandemic had smashed the service sector, and China’s trade restrictions on Australian lobster, beef, cotton, timber, wine, barley, coal and copper exports were starting to bite.
While some suggested it was the beginning of a new super-cycle and others the “end of an era,” as usual, it was somewhere in between. Caught in the day-to day-moves of markets, we tend to forget the commodity markets are cyclical and very much seasonal propositions.
Our biggest five iron ore miners – BHP (ASX:BHP), Rio Tinto (ASX:RIO), Fortescue Metals Group (ASX:FMG), Roy Hill (owned by Gina Rinehart’s Hancock Prospecting) and Mineral Resources (ASX:MIN) – paid-out total dividends of close to $59.5 billion for the year to June 30, showing just how reliant our economy was on iron ore.
And then it came. During May, the Chinese government had enough, and cracked-down on “excessive speculation” in the iron ore market. As a result, the iron ore price fell off a cliff, as China reined-in consumption on environmental grounds. Prices fell to US$80 a tonne in the space of a few months. This was the end of the great iron ore boom, or was it?
Despite Chinese steel production falling to its weakest levels since 2017, another bull rally seems to be taking place sending the price back up above US$120/t. According to S&P Global, “torrential rainfall across Minas Gerais in south-eastern Brazil has disrupted iron ore mining operations. Moreover, miners – including iron ore giant Vale (NYSE: VALE) – have announced halts across their sites.” With Vale’s production once again out of the picture, and Chinese consumption back on the rise, the scene could be set for another iron ore boom. And BHP, RIO and Fortescue shares are all benefiting from higher iron ore prices.
For the month, FMG is up 15.93%, RIO is up 13.95% and BHP is up 14.16%.
