Iron Ore Futures On Rally; Liberum Maintains Sell Rating On Big Iron Miners

Iron Ore Futures on rally; Liberum maintains sell rating on big iron miners

Iron ore prices are soaring over the supply concerns in the global market. The benchmark (CME) iron ore fines 62% Fe futures (Tioc1) climbed above $90 mark and closed at $92.15 (as on 3rd April). The factor which supported the iron ore prices was the concern of supply shortage in the global economy and coupled with steady demand from the Chinese mill industry it provided a bounce back to the iron ore prices to reach its recent high of $92.29 (as on 6th February 2019).

In a recent event, all major iron ore producers declared significant production loss, which in turn led the producers to reduce their forecasted supply for the year 2019. The reduction in the production capacity of the considerable iron ore giants such as Rio Tinto and BHP amid damages caused by the Cyclone Veronica coupled with Vale ban, led the iron ore prices to emerge as a shining star.

The news of another cyclone likely to hit Port Hedland supported the iron ore prices further. The Cyclone Wallace is expected to cause severe damages in Port Hedland in Pilbara Region, where Australian Major iron ore miners operate, which in turn, provided cushion to the iron ore prices as the market participants reckoned that the damage would cause additional production loss to the Australian iron ore miners.

Australian iron ore miners have gained significantly over the high iron ore prices previously and strengthen their balance sheet. The prices skyrocketed in the past over the ban on Brazilian mammoth iron ore producer Vale, which led Australian iron ore miners to realise high profits in terms of high sales proceeds.

The strong profit of mining companies in Australia amid the supply disruption in the global market previously prompted the Australian Government to gain an additional $15 billion of tax revenues. The lucrative taxes paid by companies such as Fortescue Metal Group (ASX: FMG), BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO), etc., set the Australian federal budget 2019 on fire.

In the recent development, the social inventories of long steel such as rebar and wire rods are declining in Guangzhou province in China. As per the data, the social long steel inventories in the provinces fell by 3.49% as compared to the previous week, which ended on 29th March 2019.

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The falling inventory, in turn, is supporting the long steel product pricing in China domestic market, which is prompting the local Chinese mills to procure more iron ore; which in turn, is building demand for iron ore in China.

The rising iron ore prices are prompting in-direct commodity investors to move towards the iron ore associated companies, which in turn, is causing miners like Rio to move up on charts. Recently Rio moved above $100 mark.

However, London-based, Liberum Capital still holds sell ratings on BHP Billiton, Rio Tinto, and Anglo American, despite the high iron ore prices in the international market. As per the consortium, the global market is slightly more optimistic about the demand of iron ore and a fair bit more pessimistic over the mines ability to produce required iron ore. The company also reiterates the current prices are not sustainable as a weak property market, will translate into a negative iron ore and steel demand, despite the high manufacturing activities in the economy.

The market participants may closely monitor the supply and demand dynamics to gauge the price direction ahead.


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