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3 junior iron ore miners to benefit from increased Chinese demand

A year has made a lot of difference in Western Australia iron ore mining. Last year around September, iron ore prices dipped down under $100, raising concerns that even larger miners like Fortescue Metals Group (ASX: FMG) might be squeezed out of much needed profits.

Move about 12 months forward, and the climate has changed. Iron ore exports out of Port Hedland are up over 20% from last year, and spot prices are up around $130-$135/tonne. Now, the emphasis is to get as much of the ore to port as possible while Chinese demand has returned and is up.

Chinese manufacturing purchase managers’ index (PMI) has been above 50 for a number of months now, with a score over 50 meaning manufacturing expansion. Their exports are up, and now materials such as iron ore have to be restocked to keep up with the industrial growth.

Investors should always keep an eye on the majors like BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) to gauge the market. Both are increasing production as well as port capacity for shipping. Rio Tinto is planning to ship around 265 million tonnes this year, and Fortescue has shipped around 25 million tonnes in the September quarter alone.

Smaller miners in production should be on your radar also for any buying opportunities should they increase their production also.

Atlas Iron (ASX: AGO) shipped 2.4 million tonnes in the September quarter, in line with their 2014 target of around 10 million tonnes, and has been allotted extra shipping capacity space at Port Hedland by the WA government along with several other junior miners to support their business potential. Its operating cash cost is around $49-$55/tonne.

BC Iron (ASX: BCI) uses Fortescue’s rail and port infrastructure to export its product, and in 2013 it was able to ship 3.15 million tonnes with an operating cash cost of about $38/tonne, down from its 2012 cost of $55/tonne. In the September quarter, it shipped 1.16 million tonnes. Costs are expected to revert to $46-50/tonne following completion of a prepayment of rail and port charges in October.

Mount Gibson Iron (ASX: MGX) achieved sales of 2.6 million tonnes in the September quarter, on track with its 2014 target of 9-9.5 million tonnes. Its share price is up 32% over the past three months.

Foolish takeaway

Iron ore prices are thought to be moderating downward over 2014, but it is difficult to read since the recent price rise was not expected to be as much as it was for this long.

There may be some short-term share price rises to come if importers like China can stay at increased levels of production and exports, so keep up to date with news and indices like the China PMI to gauge what may be coming in the near future.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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