ASX iron ore miners jump on broker upgrades

The Rio Tinto Limited (ASX: RIO) share price is jumping along with other ASX miners after brokers upgraded their forecasts for iron ore.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in the major ASX iron ore miners are jumping this morning after brokers upgraded their forecasts for the commodity.

The Rio Tinto Limited (ASX: RIO) share price rallied 1.8% to $103.80, BHP Group Ltd (ASX: BHP) share price added 1.3% to $40.36 and the Fortescue Metals Group Limited (ASX: FMG) gained 1.2% to $18.72 at the time of writing.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) jumped 0.7% as the profit reporting season started a little better than expected.

Iron ore forecasts upgrade

The outperformance of the iron ore miners today comes on the back of an ever-brightening outlook for iron ore.

Bank of America (BoA) upgraded its forecast for the steel-making ingredient through to 2024, reported the Australian Financial Review.

The bank lifted its calendar 2020 estimates to US$96.70 a tonne from US$86 and its 2021 forecast to US$85 from US$71.30.

BoA's forecast was also increased to US$75 from US$65 in 2022, while its estimates for 2023 and 2024 were revised up to US$71.70 (from US$65.10) and US$68.50 (from US$65.10), respectively.

The price of the ore is currently trading around US$118 a tonne.

What's driving iron ore upgrade

The two key reasons for the more bullish outlook. The drop in production at Brazilian miner Vale SA due to COVID-19 and robust demand for steel in China.

Meanwhile, JP Morgan turned even more bullish on the commodity as it upgraded its 2021 forecast by 19% to US$100 a tonne. It also upped its 2022 estimates by 10% to US$86.

The broker's initial worries that the iron ore price will ease as Vale overcomes its production issues have been put aside.

Demand outpacing supply increase

The miner managed to increase output to around one million tonnes a day but JP Morgan thinks this is as good as it will get for the next 12 months.

"The Vale recovery was previously seen as a catalyst to see iron ore prices trade lower," said the broker.

"However, with the production now back in the market, and iron ore continuing to rally.

"We are now starting to think prices could remain well above cost curve support levels until Simandou comes to market, which could be 5-7yrs away."

Valuation upgrades for ASX miners

This led to valuation upgrades for the three big ASX miners, although the broker thinks BHP and RIO represents better value than Fortescue.

The FMG share price outperformed with around a 70% jump since the start of the calendar year while the BHP share price and RIO share price are largely flat.

JP Morgan is recommending BHP and RIO as "overweight" (or buy) with a price target of $43 and $120 a share, respectively.

Fortescue is rated "neutral" with a price target of $18.60 a share.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

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

a sad looking engineer or miner wearing a high visibility jacket and a hard hat stands alone with his head bowed and hand to his forehead as he speaks on a mobile telephone out front of what appears to be an on site work shed.
Resources Shares

Down 14% in 2024, why is the BHP share price sliding again today?

ASX 200 investors are bidding down the BHP share price on Wednesday.

Read more »

A mining employee in a white hard hat cheers with fists pumped as the Hot Chili share price rises higher today
Resources Shares

These ASX 200 mining stocks could rise 40% to 50%

Analysts think these miners are dirt cheap at current levels.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

Fortescue share price leaps 5% as electric machinery makes a milestone

Fortescue is charging ahead with its electric mining ambitions.

Read more »

rising mining asx share price represented by happy woman miner in hard hat
Resources Shares

Why the BHP share price crushed the benchmark this week

BHP shareholders enjoyed a rewarding week.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Dividend Investing

Here is the profit forecast to 2026 for BHP shares

Let’s unearth how much profit this miner could make.

Read more »

Female miner standing next to a haul truck in a large mining operation.
Resources Shares

Is the worst of the selling now over for ASX iron ore shares?

ASX iron ore giants like BHP, Rio Tinto and Fortescue rebounded this week after falling hard in 2024.

Read more »

Three satisfied miners with their arms crossed looking at the camera proudly
Resources Shares

Why are ASX 200 mining shares smashing the benchmark on Wednesday?

Rio Tinto, BHP and Fortescue shares are all charging higher today.

Read more »

Two miners standing together.
Resources Shares

Why is the South32 share price getting battered today?

ASX 200 investors are bidding down South32 shares today.

Read more »