Iron ore sentiment up - AFRVesna PoljakSentiment around iron ore...

Iron ore sentiment up - AFR

Vesna Poljak

Sentiment around iron ore has improved, according to broker Macquarie, which points to a stabilisation of the Chinese property market including the resumption of construction on several Evergrande building sites as supporting the more upbeat mood.

BHP Group shares are trading on a free cashflow yield of 16 per cent at spot prices for 2021-22, and Rio Tinto 11 per cent. Fortescue Metals Group is on a negative free cashflow yield of 1 per cent. For 2022-23, free cashflow yields at spot prices are 11, 9 and 10 per cent respectively.

The broker prefers BHP of the three iron ore producers, and maintains an “outperform” rating on the trio.

Property transaction data tracked by the broker in 30 mainland Chinese cities indicates November sales may reveal a smaller year-on-year contraction than recorded in October.

Meanwhile, weekly shipments from BHP, Rio and Fortescue rose 3 per cent combined. Shipments in November appear to be tracking at the lowest in at least five months at a run rate of 842 million tonnes per annum combined for all producers including Roy Hill.

However, Macquarie expects the December quarter to finish on an optimistic note as the producers on a December financial year (including Rio) ramp-up production.

Vale is arguably the most at risk of missing forecasts; it would have to produce at 325 million tonnes per annum in the December quarter to hit its guidance.