Watch the latest updates on China’s coronavirus whack the share prices of our major iron ore exporters – Rio Tinto, BHP and Fortescue Metals Group when ASX trading resumes later this morning.
You can expect a lot of nervy selling as investors (and more cunning hedge funds etc) sell the shares down on fears the impact of the virus will see Chinese economic growth slow or stall.
The virus story has also helped investors ignore the first anniversary on Friday of the Brazilian mine tailing dams tragedy that left upwards of 300 people dead or missing, badly damaged the prestige (and share price of Vale, the big Brazilian iron ore miner), and set off a price and profit surge for global miners that is continuing in 2020.
In fact, the price surge helped Vale ride out the impact of its incompetent handling of mine tailing dams – it was the second dam disaster in nearly four years – in 2015 the Samarco mine (50% owned by BHP with Vale holding the rest) dam collapsed killing or leaving destitute dozens of people, destroying several small settlements and damaging infrastructure and the environment around the mine and pellet-making operation.
Global iron ore prices settled at $US93.71 a tonne on Friday according to the Metal Bulletin, up around 29% from the level a year earlier (but down 4% for the week) when the collapse of a tailings dam wall at a mine owned by Vale in Brazil triggered a global shortage of the steelmaking ingredient.
That was made worse by supply interruptions from a cyclone in the Pilbara in late March, fires at loading terminals owned by Rio Tinto and quality problems at key mines for both Rio and BHP added to the price boom that saw a peak around $US125 a tonne hit last July.
That, in turn, triggered profit booms for the likes of BHP, Rio and of course Fortescue Metals and in their share prices.
As of Friday, January 24 BHP shares ended at $40.45 to be up 22.4% in the year since the disaster happened, Rio shares ended at $103.18, up 28.2% and Fortescue shares closed at $12.48 for a huge gain of 160% over the year.
February 26 sees Rio report its 2019 financial results – iron ore prices rose by around 37% for the giant (to just over $US78 a tonne) in the December quarter, and while sales were down by around 3%, the higher price will guarantee another solid set of earnings.
But they will be the last – from now on iron ore prices will be lower compared to 2019 (or little changed) and with copper prices weaker, Rio’s 2020 earnings outlook is vastly different than for 2019. It will be a struggle and don’t be surprised to hear or see leaks about cost cuts and job losses.
Fortescue is in a different boat – its December half-year figures (the production data will be issued on January 30) will be spectacular when released on February 19 – a full six months of prices 30% or more higher than a year ago.
It’s no wonder its share price has surged again in 2020. By Friday’s close, the price was up more than 16%.
BHP releases its half-year figures on February 18 and they will be solid – a 41% gain in average iron ore prices, a small gain in copper prices, but sharp falls in coal prices.
Oil and gas prices were mixed to weaker. Iron ore production and sales were up marginally in the six months to December.
Vale reports its production and sales data for 2019 (and the December quarter on February 11 and the quarterly and full-year financial results on February 20.
Up to last Friday, its shares were down 4.2% for the year, which is better than it should be and due solely to the sharp rise in prices in the wake of the January 25 disaster.
On Saturday, Vale revealed it has continuing concerns about another tailings dam wall in the wake of heavy rain across the southern iron ore province in the past week or so.
It is one of a number of dams being monitored. Another collapse or worsening problems would reignite the cooling iron ore price boom and send it deeper into 2020.
