The Federal Government’s mid-year economic and fiscal outlook (MYEFO) is due today and iron ore prices are top of mind. The BHP Group Ltd (ASX: BHP) share price will be one to watch alongside Rio Tinto Limited (ASX: RIO) as the government looks to commodities to keep its budget deficit under control.
What is the economic and fiscal outlook?
The Federal Government releases the MYEFO each year to provide an economic update to the country. It is a highly-anticipated release from the Government regarding its half-year expectations which updates the outlook from the previous budget.
The S&P/ASX 200 Index (ASX: XJO) is set to open higher this morning ahead of the release but there’s already talk about what’s inside.
What does it mean for the BHP share price?
According to an article in the Australian Financial Review (AFR), the forecast deficit for this financial year is set to stay below $200 billion. That’s largely thanks to a dramatic decrease in the number of JobKeeper recipients combined with strong iron ore prices. Iron ore prices have been booming in recent months thanks to strong offshore demand and infrastructure boom.
The expectation for higher commodity prices has been a big factor in a strong rebound for ASX miners in 2020. The BHP share price has climbed 9.2% for the year and 68.9% in the last 9 months. Meanwhile, Rio Tinto and Fortescue Metals Group Limited (ASX: FMG) shares have surged 13.1% and 103.8%, respectively.
Iron ore is generally considered a ‘safe’ export to China amid the ongoing trade spat. That’s largely due to Australia’s market dominance in the industry, with few substitutes around the world. BHP, Rio and Fortescue are three of the “Big Four” producers, with troubled Brazilian company Vale the other major competitor. Given the strong demand for the commodity, iron ore exports are expected to remain relatively unaffected by the deteriorating relations.
Coalition governments have historically been conservative in estimating iron ore prices for budgeting purposes. That looks set to continue with the MYEFO using a forecast free on board price of US$55 per tonne by September 2021.
Foolish takeaway
The BHP share price will be one to watch today as the Federal Government talks through its MYEFO for FY2021. It looks like iron ore is once again firming up as a key cog in Australia’s economic machine which could make the Aussie miner’s shares worth tracking in 2021.
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More reading
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
The post What today’s economic outlook means for the BHP (ASX:BHP) share price appeared first on The Motley Fool Australia.
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