Shares in Australia's largest miners could soar this morning as higher commodity prices look set to improve ongoing profitability for the likes of BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
The BHP share price and Rio Tinto share price have started this morning strongly, up by 0.4% and 1.6%, respectively, on the supportive technical environment. The Fortescue Metals Group Ltd (ASX: FMG) share price has also jumped higher, up 3.13% at the time of writing.
Commodities analysts are tipping the iron ore price could cross the US$100 per tonne mark (currently US$87 per tonne) following a supply drop of 40 million tonnes from Brazilian mining group, Vale, after the collapse of its dam wall in recent weeks.
While the demand-side of the story is by no means stellar, with a Chinese economic slowdown the biggest headwind facing Australian miners, the latest price boost should see further increases for Rio and BHP. Fortescue is up a whopping 46.51% year-to-date from yesterday's close whilst Rio's 18.70% and BHP's 11.41% are nothing to be sneezed at.
This morning's increase for Rio to $92.64 per share is its highest share price since the middle of the GFC (and mining boom) of 2008/09, whilst the $36.17 BHP share price represents its highest point since 2011. I expect there could be further room to grow here with the mid-year reporting season upon us and further upside potential for iron ore in the short-term.
However, the highly-cyclical mining sector is always vulnerable to an economic downturn, and these risks are arguably elevated after the RBA downgraded its outlook for the Australian economy based on softer economic data on Tuesday. We've seen recent misses in building approvals and retail sales which don't bode well for continued growth throughout the first half of the year.
Foolish Takeaway
Australia's biggest miners have enjoyed a strong start to the year, buoyed by supply-side shocks which have pushed iron ore prices to levels not seen since 2014. It's a similar story for one of my personal favourite stocks Aluma Limited (ASX: AWC) which I think provides a solid, high-yield mining option for Fools.
