I noted this morning that everybody wants to catch the iron ore falling knife.
There are fools:
I’m not expecting the iron ore price to get back to US$140 per tonne any time soon. But, there are a couple of key reasons why I think now could be the right time to invest in BHP shares and Rio Tinto shares, even if Chinese demand doesn’t recover significantly in the next 12 months.
First, BHP and Rio Tinto are investing significantly in copper. Not only does copper appear to have a positive future due to electrification, but it enables the miners to diversify their commodity earnings, reducing the reliance on Chinese iron ore demand.
Fortescue doesn’t have that copper exposure, and it recently announced it would essentially be slowing its green energy efforts, so I’m a little less optimistic.
Second, markets are expecting interest rate cuts in the United States, Australia, and elsewhere over the next 12 months. This could significantly influence steel demand by increasing total economic demand.
Err…
Copper is as exposed to Chinese property as iron ore and far smaller for earnings.
How do rate cuts in the US and Australia benefit iron ore? Chinese easing is at the pace of a glacier…
Professionals are also doing it:
Citi’s equities research chief Paul McTaggart has made a counter consensus call to upgrade iron ore miner Fortescue to buy with a $21 per share valuation.
The stock has tumbled 42.8 per cent in 2024 to $16.82, but Citi thinks this is an opportunity for contrarian investors to get onboard.
“Consensus iron ore pricing of $US100/t in calendar year 2025 looks reasonable given an expected reduction in high cost production to offset new tonnes to the seaborne market. 2026 looks tougher given Simandou ramp-up,” Citi said.
“Consensus pricing” is wrong.
How is iron ore going to sustainably recover to $100 unless steel prices turn around?
And how is that going to happen as property demand wanes, tariffs hit Chinese exports and decarbonisation lands on both?
Only a massive stimulus will do it and all signs are that it is not coming.
There are no arguments above that explain how or why the price will turn beyond the usual seasonality.
