Iron Ore Supply Concerns May Hurt Steel Consumers

Iron ore is the primary source of iron for the steel industry. Its four main types are magnetite, massive hematite, titanomagnetite, and pisolitic ironstone deposits. Most essential minerals in iron ores are Hematite (Fe₂O₃) and Magnetite (Fe₃O₄), and ore containing high quantities of hematite and magnetite is known as “Natural ore”/”Direct Shipping ore” as they can be directly fed into the blast furnaces. Most of the iron ores are used in making various grades of steel based on the quantity of carbon and reduction of impurities such as silicon, phosphorus, and sulfur. The steel is then used in making automobiles, ships, locomotives, tools, and other thousand items.

Australia has the world’s largest (around 52 billion tonnes) estimated iron ore reserve. After Australia, follows Russia, which accounts for 25 billion tonnes (13%), Brazil 23 billion tonnes (12%), and China 21 billion tonnes (lower grades).

In Australia, iron ores are mostly explored in Western Australia, South Australia and the Northern Territory. Western Australia accounts for ~98% of Australia’s total iron ore extraction, which is around 28 billion tonnes. As on 28th April 2019, Iron Ore (62% Fe) traded at USD 93.16. As per the media reports, international iron ore prices are forecasted to rise by 11.4% in CY2019, due to supply disruption related concerns from the key mines in Brazil and Australia. The supplies at Brazil was affected following the Brumadinho dam rupture, which forced decommissioning of Vale’s upstream tailings dam in Brazil, which led to the suspension of several mines temporarily. The tightening environmental policies in China is expected to hurt steel production in the country. In Australia, the tropical cyclone Veronica is expected to affect production and shipment of ore.

The rising consumption of steel in China and declining supplies are expected to raise the iron ore prices, which is expected to benefit iron ore producing companies.

The major producers of iron ores in Australia are the BHP Group (ASX:BHP), Fortescue Metals Group (ASX:FMG), and Rio Tinto (ASX:RIO).

On the stock information front:

At market close on 29th April 2019, the stock of BHP Group was trading at $37.82, up 0.585%, with a market capitalisation of $110.76 billion. Its current PE multiple stands at 25.73x, and its last EPS was noted at 1.461 AUD. Its annual dividend yield stands at 4.43%. Today, it reached day’s high at $37.93 and day’s low at $37.68, with a daily volume of 3,466,207. Its 52 weeks high price stands at $40.13 and 52 weeks low at $29.062, with an average volume of 7,122,535. Its absolute return for the past five years, one year, six months, and three months are 14.30%, 26.38%, 25.69%, and 11.44%, respectively.

At market close on 29th April 2019, the stock of Fortescue Metals was trading at $7.25, up 0.834%, with a market capitalisation of $22.14 billion. Its current PE multiple is at 18.18x, and its last EPS was noted at 0.395 AUD. Its annual dividend yield has been noted at 4.31%. Today, it reached day’s high at $7.35 and day’s low at $7.20, with a daily volume of 19,062,598. Its 52 weeks high price stands at $8.24 and 52 weeks low price at $3.455, with an average volume of 22,248,229. Its absolute return for the past five years, one year, six months, and three months are 42.89%, 62.94%, 91.02%, and 45.45%, respectively.

At market close on 29th April 2019, the stock of Rio Tinto was trading at $97.75, up 0.133%, with a market capitalisation of $36.24 billion. Its current PE multiple is at 8.69x, and its last EPS was noted at 11.238 AUD. Its annual dividend yield stands at 4.32%. Today, it reached day’s high at $98.34 and day’s low at $97.34, with a daily volume of 755,303. Its 52 weeks high price stands at $102.83 and 52 weeks low price at $66.978, with an average volume of 2,031,511. Its absolute return for the past five years, one year, six months, and three months are 63.01%, 27.41%, 36.41%, and 21.11%, respectively.

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