Iron ore price rockets up 6%: Excellent news for miners

Iron ore price gains 6% to US$53.86 a tonne and more gains could be coming

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The spot iron ore price went nuts overnight, rising 6.4% to US$53.86 a tonne, the highest price since May 20, in what should be great news for miners.

The average price so far this year is now around US$51.89 a tonne, and appears to have stabilised at these levels – bar the occasional jump or dive.

iron ore price June 2016
Source: MetalBulletin

Further rises tonight could also be on the cards, with Chinese iron ore futures surging another 3.7% overnight. The spot price tends to follow the futures pricing.

That should be a welcome relief to Australia's junior miners – many of whom were struggling to make a profit at lower prices. It should also see many post a strong start to the day's trading, including the likes of BC Iron Limited (ASX: BCI), Atlas Iron Limited (ASX: AGO), Gindalbie Metals Ltd (ASX: GBG), Grange Resources Limited (ASX: GRR) and Mineral Resources Limited (ASX: MIN).

It also means stronger cash flows for the majors Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG).

There are still some big threats hanging over the iron ore price, including increasing low-cost supply coming online from the likes of Brazil's Vale and Gina Rinehart's Roy Hill Mine. And while BHP, RIO and Fortescue appear content to continue producing at current levels, that doesn't necessarily mean that will remain the case.

There's also the risk of China cutting its steel production – with reports that the government was aiming to slash 45 million tonnes of Chinese steel capacity this year – and follows on from the February announcement of cutting 100-150 million tonnes of steel capacity by 2020. Many Chinese steelmakers are running at a loss, and two of the largest producers are planning to restructure their operations according to Reuters.

Foolish takeaway

The short term news might be good, but the longer-term outlook appears clouded with risks coming from both the supply and demand sides. Buyers of junior iron ore miner's shares beware.

 

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »