ASX-Listed Iron Ore Giants Taking a Beat While Iron Ore Stands Tall; What’s Changed?

Summary

• ASX-listed iron ore mining behemoths such as Fortescue Metals Group Limited (ASX:FMG), BHP Group Limited (ASX:BHP), Rio Tinto Limited (ASX:RIO) are in a spiral despite steady iron ore market.
• As the commodity-linked stocks carry dual beta exposure, the overall change in the market sentiment over the equity front is now keeping a lid on their gains.
• The gold market is again shining brighter, while global indices such as Dow Jones along with domestic equity indices such as S&P/ASX 200 are taking a soar bite, as a result of the second wave of infection across China.
• Furthermore, the market and industry experts anticipate that the iron ore price would resume a normative movement over the long-run.

The commodity-related stocks carry double beta, i.e., they contain risk associated with commodity markets and risk offered by the equity front as well. ASX-listed iron ore stocks till recently have been rallying on back of rising iron ore prices across the global front, are now in a spiral, despite strong iron ore market.

To Know More, Do Read: Things to Be Familiar With Before Fishing for Mining Stocks

After rallying and recovering considerably, equity indices on the domestic front and some on the global front such as Dow Jones are now losing momentum and shedding some of the early gains as the second wave of COVID-19 is now emerging across countries such as China, which had reported new cases quite a few months back.

The second wave of COVID-19 fears are coming true with China shutting down schools and New Zealand reporting new five cases, the market risk appetite is again cooling-off with, leading to a rise in gold prices and correspondingly a fall on the equity front.

The gold spot has recovered ~ 4.43 per cent in the recent past from its low of USD 1,670.74 (as on 5 July 2020) to the level of USD 1,744.92 (as on 11 June 2020), and at present, the gold spot is hovering around the levels of USD 1,724.00 (as on 18 June 2020, 12:38 PM AEST), well above its psychological support of USD 1,700 per ounce.

To Know More, Do Read: Gold Slips Below USD 1,700 Per Ounce, ASX-Gold Stocks At the Brim of A Top

On the contrary, the S&P/ASX 200 Index has slipped from its recent high of 6,198.60 (as on 9 June 2020) to the level of 5,719.80 (as on 16 June 2020), which marks a fall of ~ 7.72 per cent, ASX-listed iron ore stocks mimicked the benchmark index and witnessed price correction.

Iron ore prices have been skyrocketing with prices contouring a 52-week high in China (as on 8 June 2020) and revolving around the same level since then, which along with the rise in the global equity market, had propelled ASX-listed iron ore mining stocks with stocks such as Fortescue Metals Group Limited (ASX:FMG) reaching a record high.

To Know More, Do Read: Fortescue Metals Breaking All Records!! Here’s Why?

The Equity Market Fall the Only Reason?

While the decline in the global equity market is one reason behind the sentiment change related to ASX-listed iron ore stocks, the market is also discounting the decline in iron ore prices over the long-run.

To Know More, Do Read: Iron Ore Futures Predisposed to China’s Steel Industry Revival

The iron ore prices have been on a surge due to the supply shortage and the market estimation that China would further stimulate its steel industry. Even the World Steel Association projected that despite a 6.4 per cent projected decline in the global steel demand, the steel consumption in China would grow by a one per cent during the year due to the infrastructure revival.

To Know More, Do Read: China Poised to Grab the Global Steel Trade as Economies Open up for Trade

However, every forecast related to the commodity consumption in China only had one risk factor, i.e., the risk of the second wave of the infection, which in the status quo, seems to be coming true, leading to a decline in many commodities, including base metals and oil.

Also Read: OPEC Anticipates Fall in Demand for Oil- Supply Chain to Match Tune?

ASX-Listed Iron Ore Stocks

BHP Group Limited (ASX:BHP)

After reaching a recent high of $38.090 (as on 10 June 2020), the stock is trailing down to presently trade at $35.680 (as on 18 June 2020, 1:44 PM AEST), which marks a fall of ~ 6.32 per cent.

The Company announced senior management changes on 17 June 2020 with the appointment of David Lamont as the new Chief Financial Officer, who would resume charge from 1 December 2020.

To Know More, Do Read: BHP Shuffles Senior Management Appoints David Lamont As New CFO

During the March 2020 quarter, the Company produced 181 million tonnes of iron ore, up by 3 per cent against the previous corresponding period (or pcp) and down by 1 per cent against the previous quarter.

The average realised price of the iron ore remained 5 per cent lower against the previous quarter to stand at USD 74.28 per wet metric tonne on a free-on-board basis.

However, the average realised price till FY2020 onset to the March quarter remained 15 per cent higher against FY2019, which in turn, allowed the Company to partially offset a decline in production.

Despite a lower realised price and production during the March 2020 quarter against the previous quarter, the stock jumped on the exchange as the market factored a further rise in iron ore price along with the bullish sentiment around the equity front.

However, now the market anticipates a normative movement in iron ore price over the long-term, which is now leaving the stock exposed to the overall market sentiments; thus, a decline in the overall market is keeping the stock rally in check.

By the same token, other ASX-listed iron ore stocks such as Rio Tinto Limited (ASX:RIO), Fortescue Metals Group Limited (ASX:FMG) are showing a similar price action.

To Know More, Do Read: Iron Ore Exports Cross Three Digit Mark, would it Sustain?

Furthermore, some companies such as FMG and Rio have come under community backlash in an attempt to build their production portfolio and destroying some aboriginal sites, which coupled with changing market sentiment and estimation of normative movement in iron ore prices might be a possible reason for the giants to take a beat on the exchange.