Why ASX iron ore miners may outperform this morning

Our market is likely to drop this morning but ASX iron ore miners are poised to buck the downtrend as the commodity jumped over US$100. But is this sustainable?

Our market is likely to drop this morning but there's one group of ASX stocks that are poised to buck the downtrend.

The futures market is predicting a 0.4% fall in the S&P/ASX 200 Index (Index:^AXJO) as unbridled  violence in the US, geopolitical tensions with China and the ongoing COVID-19 pandemic takes the wind out of our sails.

The thin silver lining to the global coronavirus outbreak is that it's pushed the iron ore price to over US$100 a tonne on the weekend.

Can bulls fly?

This might be enough to see the BHP Group Ltd (ASX: BHP) share price, Rio Tinto Limited (ASX: RIO) share price and Fortescue Metals Group Limited (ASX: FMG) share price jumping higher when the market opens.

I say "might" because there are doubts that the commodity bull run may be very short lived and that prices could start correcting as soon as next month. I wonder what is the reverse analogy of a "dead cat bounce"? Maybe "bulls growing wings"?

But the uncertain outlook hasn't stopped the iron ore benchmark from jumping to US$101.05, according to Bloomberg.

Why iron ore miners may outperform still

Our biggest iron ore rival, Brazil, is quickly becoming the epicentre of the COVID-19 crisis as it recorded another surge in new infections.

This is anticipated to cause major disruption to ore exports from that country with Vale SA downgrading its full year shipment forecast for the commodity in April.

At the same time, China's industries are reopening as the country overcomes the pandemic. This is driving up demand for the steel-making ingredient.

Chinese stimulus

Chinese leaders have also announced a 3.6 trillion yuan ($760 billion) stimulus package to help pull its economy out of the coronavirus rut.

While the package was smaller than what the market was hoping for, it will still bolster infrastructure construction – a key driver for iron ore demand.

The Chinese government said expenditure on investment projects will rise by 22.4 billion yuan this calendar year to 600 billion yuan.

Is a market correction looming?

However, this isn't enough to stop some experts from predicting a downturn in the iron ore price in the second half of 2020 after it hit its highest level since August last year.

Bloomberg Intelligence expects a 34-million-ton surplus in the second half on higher supply and stagnating demand, compared to a 25-million-ton deficit in the first half.

Other experts like Credit Suisse have also warned that we are currently in "peak tightness" and that rising output from Brazil and Australia will ease the shortage in July or August.

Foolish takeaway

On the other hand, it's hard to predict what impact the COVID-19 fallout will have on Brazil over the coming weeks or months.

There's also the belief that China will inject another round (or three) of stimulus if its economy starts to sputter – whether from the pandemic, the trade war with the US, or both.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

More on Resources Shares

Gold nugget in a miner's hand amid black rocks.
Resources Shares

Evolution Mining vs Northern Star Resources: Which gold stock is better for a $1,000 investment?

Evolution Mining and Northern Star Resources go head-to-head — see which gold stock I’d back with $1,000 today.

Read more »

A happy young boy in a wheelchair holds his arms outstretched as another boy pushed him.
Resources Shares

Capricorn Metals vs PDI Gold: Which high-flying ASX gold stock has more upside left?

Capricorn Metals and PDI Gold are booming gold stocks, but which has more room to run after surging more than…

Read more »

Young successful engineer, with blueprints, notepad, and digital tablet, observing the project implementation on construction site and in mine.
Resources Shares

3 reasons why the Rio Tinto share price could be a buy

Let’s dig into the potential of this mining giant.

Read more »

Green arrow with green stock prices symbolising a rising share price.
Resources Shares

Benz Mining Corp vs EQ Resources: Both up more than 500% in 5 years, which is more likely to keep climbing?

Both ASX All Ords miners have delivered outstanding returns. But which is more likely to keep the rally going?

Read more »

Two mining workers on a laptop at a mine site.
Resources Shares

Down 29% so far in 2026: What do brokers tip next for Fortescue shares?

The ASX mining shares are climbing higher again today. Can they keep going?

Read more »

A mining worker clenches his fists celebrating success at sunset in the mine.
Resources Shares

Fortescue vs Rio Tinto: Which ASX mining giant is the better buy today?

Fortescue vs Rio Tinto: See how the mining giants compare on yield, valuation, and recent share price momentum.

Read more »

Two workers on a tablet at a mine site, with mining machinery behind them.
Resources Shares

Fortescue vs BHP: Which ASX miner is better for passive income in October?

Comparing Fortescue vs BHP shares for passive income—who pays the bigger franked dividend, and which miner I'd buy today for…

Read more »

Female miner standing smiling in a mine.
Broker Notes

3 ASX mining shares with 43% to 322% upside ahead: brokers

The miners remain on an upward trajectory despite the broader market weakening in 2026.

Read more »