Iron ore rally bumps up ASX miners’ profits; supply concerns remain


  • The recent iron ore price rally has powered ASX-listed miners to churn out robust March quarter results.
  • The miners across the globe struggled to operate effectively due to COVID-19 impacts and bad weather conditions last year.
  • FY21 production guidance from the leading iron ore miners is expected to reduce the supply deficit and stabilise the market.

Leading miners like Rio Tinto (ASX:RIO) and Fortescue Metals Group Ltd (ASX: FMG) have gained the most from the recent iron ore rally. Despite the ongoing global crisis due to the coronavirus pandemic, these miners have delivered strong quarterly results for the three-month period ended March 2021.

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In the March quarter, Rio’s iron ore shipments were 7% higher than the previous year. The company sold 65.42 million tonnes of iron ore in the last quarter, significantly higher than 62.43 million tonnes in the year-ago period.

Meanwhile, in the March quarter, FMG's iron ore shipments of 42.3 million tonnes were in line with the record third-quarter shipments last year. FMG recorded a 2% increase in YTD shipments compared to FY20.

The rally in iron ore prices has proved to be a silver lining during the dark hours of the pandemic, owing to which mining operations were halted and miners struggled to resume their operations. The recent iron ore price rally served to balance the losses recorded for those periods.

Must Read: FMG reports strong iron ore shipment in Q3, keeps FY21 guidance unchanged

What are the plans for the upcoming period?

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Iron ore prices are currently trading above US$190 per tonne, the highest since March 2008. The prices are being driven by the robust demand in steelmaking industries and supply concerns.

China's crude steel production has gone up by more than 19% in the past one month despite tight emission guidelines enforced by the Chinese government on the steel industries.

Leading market analysts like S&P Global Platts believe that the demand for iron ore is expected to rise in Q2 CY21.

The world’s largest iron ore suppliers – Rio, BHP (ASX:BHP) and Brazil's Vale – have reported decent March quarterly results but struggled to produce more than they produced during the last quarter of 2020. Weather conditions in Australia and Brazil coupled with scheduled maintenance activities hindered the production of these miners, creating a supply deficit and boosting the prices higher.

Interesting Read: Mining Giant Vale Turns In Stellar Q1 Results On The Back Of Iron Ore Rally

However, the guidance maintained by these companies for the upcoming quarters gives assurance that the miners are trying hard to reduce the supply deficit and stabilise the market.

Investing in Commodity Players

Since the prices of commodities are trading near all-time high levels in what experts are assuming to be a commodity supercycle, investing in these resource stocks could block the gains until the next highs. Also, China has recently announced plans to introduce a capping limit on the prices of these commodities to stabilise the market by bringing down the prices.

Good Read: ASX Copper Stocks Slide On China’s Commodity Price Capping Move  

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