Friday last week saw most ASX 200 (INDEXASX: XJO) mining shares get a big boost from news of record steel production in China and more supply concerns from the world’s largest iron ore producer, Vale SA (NYSE: VALE).
The combination of these factors has seen iron ore prices soar to almost five-year highs, while the share price of multiple companies followed iron ore higher.
Fortescue Metals Group Ltd (ASX: FMG) was up 6.5% on Friday while Syrah Resources Ltd (ASX: SYR) was up 8.2%. Rio Tinto Ltd (ASX: RIO) rose 2% and closed above that all-important $100 per share price level.
What’s The News From Brazil?
On 25th January 2019, the Brumadinho dam accident left more than 300 people dead and forced operations from the world’s largest iron ore producer, Vale SA, to a halt.
Following that accident, iron ore prices rose 30% due to supply constrictions and companies like Fortescue and Rio rose with it.
More recently, Vale appeared to be resuming operations normally and it looked as though iron prices may start to fall until prosecutors in Brazil announced on Friday that another dam belonging to Vale is at risk of collapse.
This sent the iron price 3.2% higher with some analysts predicting it could rise higher still.
China’s Record Month
Around the same time news was released stating that there was record Chinese steel production in April. For investors, this reaffirmed that China is not slowing down and will continue to prop up demand for iron ore and, in turn, ASX iron ore producers.
Good News Comes in Threes
With the Coalition returned to the Australian government over the weekend, the ASX is expected to receive a boost when the market opens today.
The government’s comparatively lax attitude towards environmental sustainability will likely give miners and iron ore producers a further boost, so I expect shares of companies like Fortescue and Rio to have a good day today.
While it all looks positive for iron ore producers, it’s not a sector I like to invest in because of the cyclicality of commodity prices. I also think a lot of the positive news was already priced-in on Friday, so gains today may not be as high.
I’d rather invest in one of the companies revealed in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
