Can BHP, Fortescue, and Rio Tinto shares climb even higher?

Three of the best performers on the S&P/ASX 200 index in 2019 have been BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO).

Since the turn of the year, the BHP share price is up 21%, the Rio Tinto share price is up 28%, and the Fortescue share price is up a whopping 92%.

The latter is the second best performer on the benchmark index behind only Afterpay Touch Group Ltd (ASX: APT), which has risen a staggering 104% in 2019.

Why are these mining shares racing higher?

Investors have been snapping up the shares of BHP, Fortescue, and Rio Tinto due to a sizeable increase in iron ore prices this year.

Following the dam disaster at Vale’s operation in Brazil and recent disruptions in Australia, there are concerns that iron ore supply might not keep up with demand.

This led to the benchmark iron ore price climbing to US$95.90 a tonne on Friday according to Bloomberg, which was its highest level since July 2014.

The good news for these miners is that some experts believe that prices could continue to climb higher from here.

Wu Wenzhang, founder and president of Shanghai Steelhome Information Technology Co., told Bloomberg that prices could increase “as mine closures in Brazil spur a market deficit in the second half of the year.”

Wu warned that if iron ore stockpiles in China slide below 100 million tonnes, it was likely to trigger “devastating” price volatility. As of April 5, port stockpiles totalled nearly 150 million tons, just ahead of the “safe minimum” of about 120 million tonnes, according to Wu.

Is it too late to invest?

If iron ore prices continue to climb higher then I suspect that BHP, Fortescue, and Rio Tinto shares will continue their ascent.

Whilst this could make all three a buy, my preference remains BHP and then Rio Tinto due to their diverse operations and strong capital positions. I expect these two miners to return the majority of their free cash flow to shareholders via buybacks and dividends in the coming years.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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 Scott Phillips.

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