The iron ore spot price remains steady at US$84 per tonne while the low Australian/US dollar will continue to boost earnings.
This has been reflected in the share prices of ASX 200 iron ore miners BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) – all of which have fallen much less than many of their fellow S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) shares during the current market volatility.
Rio Tinto's first quarter results
Rio Tinto released its first quarter results on 17 April. The report provided commentary on the impact of COVID-19, citing that demand in China continues to recover while "in the rest of the world, the outlook is more uncertain".
More specially, "high-quality iron ores we produce remained strong in the first quarter of 2020, mainly driven by a combination of seaborne supply disruptions and solid demand from China's steel mills despite COVID-19 impacts."
BHP quarterly activities report
Likewise, BHP's quarterly activities report reiterates the same narrative – that the company is in a strong financial position underpinned by low-cost operations and expected to continue to generate solid cash flow.
BHP has produced a record amount of iron ore and its production guidance for the 2020 financial year remains unchanged for petroleum, iron ore and metallurgical coal. However, it advised that its copper and energy coal production guidance is under review, following COVID-19 impacts.
BHP also commented that "while demand in China has strengthened in recent weeks, we expect other major economies, including the US, Europe and India, to contract sharply in the June 2020 quarter."
Are iron ore shares a buy?
This is a challenging period to be assessing the commodity markets. Last week was a key example of an unthinkable, black swan event – where the price of West Texas Intermediate crude oil futures expiring in May plunged to -US$40.32 a barrel.
That said, there are some tailwinds that could buoy the iron ore spot price in the short term. As China slowly reopens its economy, it will likely bring about commodity-intensive growth that will likely have a positive effect on iron ore demand and prices. Furthermore, Brazilian iron ore miner, Vale, has slashed its 2020 guidance for iron ore fines and pellets by 20 to 25 million tonnes.
Iron ore has remained a resilient commodity given favourable supply-demand dynamics. This is likely to buoy the share price of Australian iron ore miners. Furthermore, the strong financial position of iron ore miners is reflective of the iron ore price boom in 2019.
While there may not be a light at the end of the tunnel for this epidemic, iron ore miners are showing resiliency and continue to capitalise on China's rebounding economy and weakening global supply.
