3 stocks to watch as iron ore price climbs above $ 200 per tonne
Iron ore prices have rebounded above $ 200 a tonne following reports that North China’s steel center Tangshan is considering easing restrictions on steel production at its factories. Earlier, on May 26, 2021, iron ore prices had plunged to $ 183 per tonne at their lowest in a month due to China’s campaign to limit steel production to reduce carbon emissions . Thus, the prospect of easing restrictions has worked in favor of iron ore, pushing prices up to the current level of $ 207.50 per tonne.
Iron ore has gained 30.9% year-to-date. Iron ore prices had registered a solid gain of 80% last year, making it the best performing commodity in 2020. Last year, China’s massive infrastructure revival to recover from the pandemic-induced crisis has resulted in increased demand for iron ore fueling its prices amid supply issues from the coronavirus impacting Brazil. However, this year iron ore prices have run out of steam somewhat as the Chinese government ordered local steel mills, which failed to meet emission control targets, to cut production between March 20 and March 20. December 31st. China remains committed to its pledge to peak carbon emissions by 2030 and achieve carbon neutrality by 2060.
Despite the aforementioned restrictions, demand for iron ore has shown resilience in China, as factories that were not subject to production restrictions continued to increase production. Steel production in China is benefiting from higher infrastructure spending and stronger manufacturing activity. Caixin China’s general manufacturing PMI index hit a five-month high of 52.0 in May 2021. It is also the 13th consecutive month of expansion of the plant’s activity. According to the latest data from the World Steel Association, steel production in China increased 15.8% year-on-year to 374.6 Mt (million tonnes) between January and April 2021. During this time, global steel production increased 13.7% year on year to 662.8 Mt. In addition, in the first four months of 2021, China imported 381.98 million tonnes of ore from iron, which is an increase of 6.7% year over year.
Meanwhile, major iron ore producers like Rio Tinto plc RIO, BHP Group BHP, Vale SA VALE and Fortescue Metals Group Limited FSUGY struggled to meet strong demand from China in the first quarter due to operational challenges and weather disruptions. BHP Group’s iron ore production during the January-March period fell by 3%, while that of VALE fell by 19.5%. Rio Tinto’s iron ore production in the March quarter fell 2% on an annual basis. Fortescue Metals Group’s iron ore shipments of 42.3 Mt were in line with last year’s record shipments. However, production is expected to resume throughout the year.
The World Steel Association predicts that demand for steel will increase 5.8% in 2021 to reach 1,874.0 million. China’s steel demand is expected to increase 3.0% this year. According to the International Monetary Fund, the global economy is expected to grow 6% and 4.4% in 2021 and 2022, respectively. China is expected to grow 8.4% this year and 5.6% in 2022. This will boost the demand for steel, thus increasing the need for iron ore. This will continue to support iron ore prices.
Industry outperforms the S&P 500 and the broader sector
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3 mining stocks at a glance
We recommend these iron mining stocks which are well placed to benefit from the rise in iron ore prices. These stocks have a Zacks Rank # 2 (Buy) or # 3 (Hold) and a VGM score of A or B. Our research shows that stocks with such a combination offer the best investment opportunities.
Year to date, these stocks have outperformed the 12.6% growth of the S&P 500. This is illustrated in the table below.
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Valley: The Rio de Janeiro, Brazil-based Vale Company produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and abroad.
Supported by the start-up of new iron ore assets, the company plans to reach a capacity of 350 Mt by the end of 2021 and 400 Mt per year by the end of 2022. The company remains committed to introducing more high quality ore on the market. Vale’s efforts to improve productivity and reduce costs will improve margins. In addition, investing in growth projects and debt reduction efforts will benefit it.
The company has an estimated long-term profit growth rate of 32.4%. Zacks’ consensus estimate for FY2021 earnings suggests about 138% year-over-year growth. The consensus estimate has moved north 14% in the past 30 days. The company posted a surprise profit of 4.1% on average over the last four quarters. Since the start of the year, the stock has gained 32.5%. He currently has a Zacks Rank # 2 and VGM score of B. You can see The full list of today’s Zacks # 1 Rank stocks here.
BHP Group: Based in Melbourne, Australia, BHP Group engages in the exploration, development and production of oil and gas properties; and mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore and metallurgical and energetic coal.
BHP expects to produce between 245 Mt and 255 Mt of iron ore in fiscal 2021. Efforts to make operations more efficient through smarter adoption of technology across the value chain will help reduce costs, thus strengthening the company’s margins. The emphasis on debt reduction is also commendable. The company has four major projects under development in petroleum, iron ore and potash, which will drive long-term growth.
The company has an estimated long-term earnings growth rate of 4%. Zacks’ consensus estimate for FY2021 earnings suggests year-over-year growth of 83.5%. The consensus estimate has increased 2% in the past 30 days. He has a Zacks Rank # 3 and VGM score of B. The title has appreciated 17% since the start of the year.
Rio Tinto: Based in London, UK, Rio Tinto is active in the mining of aluminum, silver, molybdenum, copper, diamonds, gold, borates, titanium dioxide, salt, of iron ore and uranium.
Rio Tinto expects to produce 325 to 340 Mt of iron ore in fiscal year 2021. The company has a portfolio of world-class high-quality assets and continues to strengthen it by increasing investments in large-scale projects. value to ensure long-term growth. It also remains committed to making its operations as efficient as possible through the use of technology and innovation, including automation. A strong balance sheet and disciplined capital allocation support its ability to support production, increase investment in development projects (in high-yielding iron ore and copper), while delivering superior returns to shareholders.
Zacks’ consensus estimate for FY2021 earnings shows an improvement of about 95% year over year. The consensus estimate has been revised up 11% over the past 30 days. Zacks title ranked No.3 with VGM score of A has gained 20.8% so far this year.
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