Why investors remain bullish on material stocks, Rio, BHP and Fortescue in particular?

Summary

  • The ASX 200 closed marginally lower this week due to a sharp selloff in tech and utilities stocks.
  • The material sector emerged as the top performer, gaining 2.82% over the past five sessions.
  • The rally in material space was driven by gains in BHP Group and Rio Tinto.

Australian shares ended lower on Friday as tech and utilities stocks slumped, though gains in material companies capped the losses. The benchmark index, ASX200, closed 0.3% lower at 7,392.6 and settled the week with a marginal loss of 0.02%. 

On the sectoral front, all indices barring A-REIT, industrial and financial, closed in negative terrain. Information technology emerged as the worst performer with a 2.4% loss, followed by utilities which tumbled 1.8%. Bucking the trend, A-REIT ended with a 1.35% gain, while industrial and financial sectors ended marginally higher.

For the week, nine of the 11 sectoral indices ended in red zone, while tech and utilities declined the most. 

Meanwhile, the material sector was the top performer, gaining 2.82% over the past five sessions. The gain in material space was driven by a strong rally in index heavyweights BHP Group (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG) which touched their respective record highs during the week.

BHP (ASX: BHP)

Shares of the world’s leading miner BHP Group (ASX: BHP) rose 0.3% to close Friday’s trade at AU$53.49. During the day’s trade, the stock gained as much as 2.28% to hit 52-week high of AU$54.55. Over the last five sessions, the iron miner gained 3.06%. 

Investors turned bullish on BHP shares after unveiling a plan to buy Canadian-based mining company Noront Resources in an all-cash deal. The company’s wholly-owned subsidiary, BHP Lonsdale, has made a recommended all-cash offer to acquire Noront Resources for 55 Canadian cents per share. BHP Lonsda, through its subsidiary BHP Western Mining Resources International (BHP WMR) has signed a definitive support agreement with Noront to complete the acquisition. 

Listed on the Toronto stock exchange, Noront is engaged in the development of nickel, copper, platinum and palladium deposits, and chromite deposits located in Ontario.

Rio Tinto (ASX: Rio)

The share price of global miner Rio Tinto (ASX: RIO) ended 0.56% lower at AU$133.42 on Friday as investors resorted to profit booking after strong rally in the last few sessions. The stock opened higher and gained over 2% to hit fresh 52-week high of AU$136.90. 

For the week, the blue-chip miner gained 4.05% after it recorded strong earnings and announced to pay AU$9.1 billion in dividends. In a separate development, the company also unveiled plan to invest AU$2.4 billion in the Jadar lithium-borates project in Serbia. It is one of the world’s most significant greenfield lithium projects.

For the half-year ended June 30, 2021, the miner reported its highest-ever interim profit on the back of rise in iron ore prices on strong demand from China. Rio, the world's top producer of iron ore, saw its underlying earnings more than doubled to AU$12.2 billion in H1 FY21, compared to the same period last year as iron ore and copper prices soared. Consolidated sales revenue jumped 71% year-on-year to AU$33.1 billion. The company declared a total dividend of AU$5.61 per share, which is more than triple from last year's total payout of AU$1.55 for the first half.

Fortescue Metals Group (ASX: FMG)

Shares of iron ore miner Fortescue Metals Group (ASX: FMG) ended Friday’s trade at AU$24.91, down 5.29%. On Thursday, the stock gained over 2.5% to hit 52-week high of AU$26.49. However, overall, the stock ended the week with a 2.28% loss. 

For the fourth quarter ended June 30, 2021, the global miner posted shipments of 49.3 million tonnes and average revenue of US$168 per dry metric tonne (dmt). The company closed the financial year 2021 with the highest-ever annual shipments of 182.2 million tonnes. The net cash was at US$2.7 billion in the June quarter, compared to net debt of US$1 billion at the end of March quarter.

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