BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) shares have been on a great run of late. But are BHP shares capable of overtaking Rio Tinto shares?
BHP share price
RIO share price
BHP is closing the gap
Rio Tinto has long been the biggest exporter of a premium type of iron ore called lump. Lumps are sold in lumpier forms than the dominant large-volume product, “fines”.
This type of iron ore is more expensive than the mainstream groups and there is a growing demand for it as steelmakers aim to reduce energy consumption and carbon emissions. It’s essentially a less energy-intensive resource.
The tables could turn with BHP opening its South Flank mine last month.
According to the Australian Financial Review, lump has made up 24% to 25% of BHP’s total iron ore exports and the new mine will push this up to between 30% to 33%. This will overcome Rio Tinto’s proportion of lump, which has declined from 29% to 26% over the past four years.
However, Rio Tinto’s Gudai-Darri mine will start producing within 12 months, which will boost lump proportions.
Who will win the race?
In the AFR, Wood Mackenzie’s Rohan Kendall noted declining steel output from nations like Japan could put pressure on lump premiums.
Also, the growing shift towards reducing carbon emissions may accelerate to a point where even a less energy-intensive resource like lump may not be acceptable.
The future of iron ore producers like BHP and Rio Tinto is largely dictated by market forces.
This is why I prefer to find businesses that are less exposed to external factors with the potential to withstand both good and bad economic cycles.
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