FMG, BHP and Rio Tinto share prices surge as iron ore tops $140

Iron ore pushes higher

Iron ore topped US$135 per tonne for the first time since 2013 last week.

This price action looks to have been primarily driven by two key factors. One, as has been a key tailwind since early 2019, supply-side issues are likely to remain prominent in the coming year – with Vale’s recent production guidance suggesting a tight iron ore market in 2021.

On the other hand, Macquarie Wealth Management argued that ‘the strong Chinese Steel production outlook are set to sustain iron-ore prices above US$100/t into CY22.’

In response to such factors, and likely others, investors have aggressively bid up the share prices of key ASX-listed iron ore players in recent weeks. Fortescue Metals Group saw the most pronounced stock gains of Australia’s big three miners – finishing out the week at a fresh all-time high of $20.61 per share.

Since January to last Friday’s session, Fortescue Metals Group has seen its stock rise by approximately 90%, with the miner benefitting strongly from buoyant iron ore prices. In that same period, Rio Tinto is up just 11%, while BHP Group has risen a paltry 6.55%.

Before the bell on Monday, Australian time, iron ore futures continued to trend higher, with the CME iron ore December futures contract trading at US$141.53 per tonne.

As iron ore prices continue to rise, Australia’s big three miners – FMG, BHP Group and Rio Tinto – all continue to push higher, opening up again on Monday, with Fortescue rising 3.74% to $21.280 by 10:13AM.

What’s the outlook for FMG, BHP and RIO?

In response to renewed optimism around iron ore markets, Macquarie Wealth Management has bumped up both its price targets and earnings estimates for Australia’s big three miners.

‘We reiterate our positive view on the Iron-ore Miners driven by strong earnings upgrade momentum and supportive cash flow yields.’

Overall, the investment bank raised their earnings estimates on the big three by between 10-20% – over the next 2 years – while raising their price targets on FMG to $23, BHP to $46 and Rio Tinto to $118.

Macquarie has Outperform ratings on all three.

Commenting specifically on FMG, which remains the most leveraged to the price of iron ore, the investment bank wrote:

‘We have made a modest adjustment to our price realisation assumption for FMG to reflect recent trends, which drives ~10% increases in earnings for FY23-FY25.’

By 1:07PM, the S&P/ASX 200 Materials (AXMJ) index was up 1.53% or 234 points to 15,614. By comparison, the ASX 200 benchmark was up just 0.39% by the afternoon session, trading at the 6,659 point level.

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