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Iron ore miners near year highs
By Javier Blas in London
Shares in iron ore miners have surged to a near one-year high after the price of the commodity used in steelmaking rallied 50 per cent from a low in early September.
The share prices of Vale, Rio Tinto and BHP Billiton, which together account for the bulk of the seaborne iron ore market, on Wednesday rose to levels last seen in February, as investors poured money into the mining sector amid signs that Chinese activity is improving and, thus, the demand for iron ore will increase.
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Equity investors bought into the sector after iron ore benchmark prices – 62 per cent iron content delivered in China – surged to a five-month high of $137.25 a tonne, up 50 per cent from a low of $88 a tonne in early September.
Iron ore is seen as a proxy for industrial activity and construction in China. The commodity is critical for the profitability of large mining groups, including Vale of Brazil, Rio Tinto, BHP Billiton and Anglo American, as well as Japanese trading companies such as Mitsui & Co. The price of iron ore is also crucial for the world’s largest steelmakers, including ArcelorMittal and Baosteel Group of China.
Michael Shillaker, analyst at Credit Suisse in London, said in a note to clients on Wednesday that investors’ expectations for iron ore prices in 2013 were low. He warned they were “likely to be exceeded” as “China re-accelerates its infrastructure spend as part of its overall 8 per cent GDP growth target in 2013”.
Daniel Brebner, analyst at Deutsche Bank in London, added in a note to clients last week that iron ore fundamentals for the next quarter were “improving sufficiently” to expect higher prices over the short term. But he cautioned that iron ore fundamentals beyond the second half of 2013 were a “concern”.
In the short term, Mr Brebner highlighted several positive factors underpinning the recovery in prices: steel inventories, in particular in China, were relatively low; economic growth was improving and with it steel demand; and there was a “reasonably high chance for further production disappointments” in 2013.
The rosier outlook for iron ore for the next three months has spurred strong inflows to miners of the commodity over the past two weeks. Shares of BHP Billiton, the world’s largest mining company by market capitalisation, surged on Wednesday to a session high of £21.79, the highest since early February. In late afternoon trading, the shares pared their gains as investors took profits.
Iron ore has traded this year as high as $150 a tonne and as low as $88 a tonne, making it one of the worst performers in the global commodities market. Iron ore prices are well below the all-time high of almost $200 a tonne set in early 2011.
The rise in iron ore prices would help the trade balance of Australia and Brazil, the world’s largest exporters of the commodity, potentially boosting the Australian dollar and the Brazilian real, analysts said.
