Australian iron ore stocks are riding high as the price of the steelmaking commodity remains strong.
Analysts expect it to stay elevated for the foreseeable future as COVID-19 curtails supply from Brazil.
Prices were below $US80 per tonne in November but have soared over the past five months, reaching $US125/t in August – the first time since February 2014.
It rose as coronavirus cases, deaths and lockdowns in Brazil, which is the second biggest iron ore producer behind Australia, continued to hamper the country’s mining regions.
Chinese Government stimulus focused on boosting infrastructure building and therefore demand for the bulk commodity is also keeping the iron ore price high.
Shipments from Western Australia have been strong, while Brazilian giant Vale has been producing less than targeted.
Macquarie Commodities Strategy have accordingly upgraded their iron ore assumptions, forecasting a price of $US115/t for the remainder of this calendar year before slipping to $US99/t in 2021.
That has flowed on to upgraded earnings expectations for iron ore miners, with Macquarie favouring Fortescue Metals Group and Mineral Resources as top picks for investors.
Fortescue’s share price has risen in tandem with the iron ore price, rallying from $8.91 on October 31 to a high of $18.25 during trade on Friday.
Over the same period, Mineral Resources shares have risen from $14.30 to Thursday’s intraday high of $30.19.
CommSec senior economist Ryan Felsman says the political spat between Australia and China could yet weigh on commodity exports, with dairy possibly next in the firing line should tensions escalate further.
But bulk commodities such as iron ore were less susceptible, as the problems in Brazil left China relying on Australian iron ore more than ever, Mr Felsman said.
Originally published as Iron ore: Brazil’s loss is Australia’s gain