There are few places of refuge amid the brutal market sell-off but there are signs that bargain hunters are braving the storm and buying the dip when it comes to our big miners.
The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index tumbled 2.5% as we head into the close but the Fortescue Metals Group Limited (ASX: FMG) share price staged a big turnaround and jumped 2.8% to $7.29.
While the Rio Tinto Limited (ASX: RIO) share price and BHP Group Ltd (ASX: BHP) share price couldn't quite muster the momentum to finish in the black, they both performed better than the broader market. Rio Tinto dipped 0.1% to $91.39 and BHP lost 0.8% to $37.10.
Bullish outlook defies trade war gloom
There are two reasons possible reasons for the rebound. Firstly, bullish commentary from Fortescue's chief executive Elizabeth Gaines at the Diggers and Dealers conference is calming nerves.
She said she is still seeing strong demand for iron ore from China despite the worsening trade war and her reassurance reinforces Rio Tinto's CEO Jean-Sébastien Jacques' confidence in Chinese demand for the steel-making mineral when Rio Tinto unveiled its profit results last week.
Another sentiment booster is Australia's monthly trade data that was released today, which pointed to the biggest trade surplus on record of just over $8 billion for June.
Trade surplus adding to positive sentiment
This is substantially ahead of May's record of $6.2 billion and it's driven by exports of our commodities to China.
The biggest contributors to the record surplus were iron ore at $77 billion and coal at $69 billion. Aluminum added $15.6 billion, while copper contributed $9.9 billion.
The data shows that Australia is a tale of two cities. Mineral exporters are rolling in cash while the domestic economy is under pressure as imports into this country came in weaker than expected (and helped with our trade surplus as that's calculated by subtracting imports from exports).
Foolish takeaway
Our iron ore majors are among the safest blue-chips to own. They have little debt and their balance sheet is flushed with cash from stubbornly high commodity prices.
This doesn't mean that iron ore prices can't fall, but even if it does tumble to US$80 a tonne from its current level of over US$100 per tonne, our iron ore majors (particularly Rio Tinto and BHP) can still make a handsome profit as they are among the lowest cost producers in the world.
These factors make these miners one of the more defensive stocks you can own on the ASX 200 – at least in this part of the economic cycle.
For these reasons, I think mining stocks will continue to outperform the broader market till the end of this calendar year, if not beyond.
