S&P/ASX 200 Index (ASX: XJO) listed miners broadly underperformed the index in 2021.
While the ASX 200 gained 13% in the year gone by, mining giant BHP Group Ltd (ASX: BHP) slipped 2%.
Rio Tinto Limited (ASX: RIO) had a more difficult year, seeing its share price fall by 12%.
Meanwhile, Fortescue Metals Group Limited (ASX: FMG) trailed the other big ASX 200 miners, closing the year down 18%.
There were numerous factors impacting the companies’ share prices over the year which go beyond the scope of this article. But the price of iron ore, a major contributor to their bottom line, was certainly a large one.
Iron ore kicked off 2021 trading for some US$158 per tonne. In July it hit record highs of US$220 per tonne before dropping sharply into November when it reached US$92 per tonne.
Despite some bearish analyst predictions, the metal bounced back in December and is currently worth US$120 per tonne.
That’s above consensus expectations for the average price in 2022. But those expectations may be on the pessimistic side, which would be welcome news to the ASX 200 miners.
ASX 200 mining shares eyeing iron ore prices
Ben Cleary is the portfolio manager at Tribeca Investment Partners’ Global Natural Resources Fund.
As the Australian Financial Review reports, Cleary “is confident iron ore majors such as BHP Group, Rio Tinto and Fortescue Metals Group will enjoy another strong year”.
That’s referring to their longer-term performance.
Over the past 5 years the ASX 200 has gained 31% while BHP is up 66%, Rio shares have gained 67% and the Fortescue share price has soared 223%.
Cleary’s optimistic outlook for the ASX 200 miners stems from his belief that consensus views for the iron ore price in 2022 are too low, just as consensus views came in well below the realised average price in 2021.
Consensus expectations for 2022, as measured by Bloomberg, are for iron ore to average US$90 per tonne.
But Cleary disagrees. He said (quoted by the AFR):
I think iron continues to rally in the first quarter to $US150 a tonne or higher, well above current consensus expectations of $US100 a tonne [for the quarter]. China’s credit impulse is starting to expand after mostly contracting in 2021 and infrastructure demand for iron ore should be particularly strong.
As mentioned above, Fortescue widely outperformed both the ASX 200 as well as BHP and Rio over the past 5 years, gaining an impressive 223%.
And Cleary believes the miner’s bull run could keep on going. Pointing to its advantages in the green hydrogen space, he said:
Fortescue is the pure-play iron ore exposure and comes with the added benefit of a green hydrogen call option that you are getting for free at current levels. Fortescue is well ahead of peers in terms of hydrogen and ammonia production, and this could be worth $50 a share or more if they execute.