In New York: BHP +3% Rio 3.7%Iron ore's strength catches...

In New York: BHP +3% Rio 3.7%

Iron ore's strength catches investors out again

James Thomson

Even after the surge in the share prices of Australia’s big iron ore miners on Thursday, there’s still a real question as to whether the market is properly pricing in the ongoing strength in iron ore prices.

BHP shares surged 4.9 per cent, Rio Tinto rose 6.9 per cent and Fortescue Metals Group surged a spectacular 13.3 per cent to a new record high of $20.65 after news broke on Thursday night thatBrazilian iron ore giant Vale once again downgraded its targets for production in calendar 2020, this time from between 310 million and 330 million tonnes to between 300 million and 305 million tonnes.

Iron ore prices are at near seven-year highs, boosting the likes of Rio Tinto, BHP and Fortescue Metals on Thursday.

That lit a fire under the spot price for iron ore, which surged about 3 per cent to $136.75,the highest price seen since December 2013.

Vale’s ongoing struggle to recover from the collapse of the Brumadinho dam in January 2019 has helped keep the iron price elevated for the best part of two years, but there are other forces at play, particularly China’s ongoing efforts to stimulate its economy following the pandemic.

As RBC notes, Chinese steel production growth rates were running at a staggering 15 per cent in October, and other indicators such as heavy equipment sales and credit conditions suggest demand-side issues are as important as supply ones.