The iron ore industry has an important role to play as the local economy struggles to cope with the COVID-19 pandemic.
The share prices of ASX miners BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have remained relatively steady amid the market chaos.
With the iron ore price floating near all-time highs and Chinese factories resuming production, ASX miners could see a surge in demand and cash flow. So, should you be buying iron ore miners on the ASX?
What is the outlook for iron ore?
The Australian government forecasts that iron ore could be the first commodity to top $100 billion in exports in a single year. The spot iron ore price continues to trade near US$90 a tonne despite volatility in the broader market. The government estimates that high prices and a boost in supply could see Australia lift iron ore earnings beyond $100 billion for 2019-2020.
Iron ore stocks in China are running at a 7-month low of approximately 120 million tonnes. With Chinese factories restarting and a possible ramp-up in infrastructure projects, demand for iron ore is expected to rebound.
How have ASX miners performed?
Earlier this week, Fortescue reaffirmed its export guidance, with shipments from Port Headland remaining in line with 2020 guidance and no delays expected from its growth projects. The Fortescue share price is trading lower today and remains more than 24% below its January high of $12.87.
BHP and Rio Tinto have also maintained their Australian operations and remain resilient to the pandemic. Iron ore contributed around 70% to BHP's earnings over the past 6 months, with the miner reporting earlier this month that the COVID-19 pandemic has had no material impact on its operations or supply chains. The BHP share price remains more than 29% lower from its 2020 highs, after feeling the effects of lower oil prices.
Miners exempt from isolation
With individual states enacting border closures, anyone crossing into a state is required to undertake a mandatory quarantine period of 14 days. This could cause problems in the mining industry which has a heavy reliance on fly-in-fly-out workers.
However, in Western Australia, mine workers are exempt from the quarantine period, allowing miners to resume operations. BHP is actually looking to support its operations by employing an additional 1,500 people across a wide range of jobs.
Should you buy ASX iron ore shares?
Analysts are bullish on the outlook for Australia's 3 big miners as the iron ore price is expected to remain high and demand continues to grow. In addition, mine closures in other countries such as Canada and South Africa could provide a boost for Australian iron ore miners.
However, I think investors should exercise caution before making the decision to buy shares in iron ore miners on the ASX. The coronavirus pandemic is a fluid situation, with supply and demand subject to change. A prudent strategy would be to wait for lower market volatility before making an investment decision.
