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Iron ore prices could rise by more than US $ 100 per ton, while Chinese traders return from the Chinese New Year holiday to catch up with the rest of the commodity market.
The price of the iron and steel ingredient has jumped 24% since the collapse of Vale SAThe Brumadinho Dam in Brazil on January 25 and has seen an increase of more than 6% since the start of Lunar New Year week celebrations in China, at around USD 92 per ton.
The tragic event sent the Fortescue Metals Group Limited (ASX: FMG), the stock price has risen 44% since the beginning of the year while the Rio Tinto Limited 15% of the share price (ASX: RIO) and 3% of the share price BHP Group Ltd (ASX: BHP).
In contrast, the S & P / ASX 200 (Index: ^ AXJO) (ASX: XJO) grew by almost 8% over the same period, but the underperformance of BHP is probably due to the fact that the ex-div share was traded without its generous special dividend early January. BHP has also outperformed other iron ore producers over the past year, suggesting some consolidation.
Will the iron ore exceed 100 USD / ton?
However, the stock is unlikely to lag much longer, with some badysts predicting that the price of iron ore could exceed $ 100 per tonne, as commodity markets tend to outperform and break.
What will add to the volatility is the fact that nobody knows how much production Vale will withdraw from the market, the miner at war had to stop operations in several of its mines.
Some of the closures were commissioned by the Brazilian authorities who inspect the safety of Vale's other tailings dams, while some of the shutdowns were voluntary.
Vale intends to increase the production of its mines in other countries, but there is reason to believe that other governments will also give an order to interrupt work at Vale to control its dams and that this could leave the iron ore market in a supply shortfall for weeks, if not longer.
Slowing down issues take second place
I would be surprised if our miners do not proactively inspect their tailings dams to avoid any problems, although the timing of the disaster, though tragic due to the number of lives lost, could not get better. moment for rivals Vale. the outlook for the price of iron ore was bleak at the end of last year.
It is to be feared that the trade war and the economic slowdown in China will slow down the demand for steel, and therefore iron ore by extension.
These concerns have not dissipated, although they are likely to step back until the lack of production and the duration of the closure of the Vale mining operations are clearer.
But the price of iron ore is not the only thing to watch for this reporting season. There is speculation (or rather hopes) that BHP will reveal another return on capital when it reports its results next Tuesday.
This could trigger the course of action BHP to reduce the gap with his peers.
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Motley Fool contributor Brendon Lau owns shares in BHP Billiton Limited and Rio Tinto Ltd. Motley Fool Australia does not own any of the shares mentioned. We fools may not all have the same opinion, but we all agree that taking into account a wide range of ideas makes us better investors. Motley Fool has a disclosure policy. This article contains only general investment tips (under AFSL 400691). Authorized by Scott Phillips.
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