ASX iron ore miners are poised to outperform the market this morning after the price of the commodity hit a record high.
The steel-making ingredient jumped to US$193.85 a tonne in overnight trade on the S&P Global Platts index, reported the Australian Financial Review.
That’s US85 cents above the previous record set on 15 February 2011.
Big ASX mining shares set to outperform
The S&P/ASX 200 Index (Index:^AXJO) is expected to open with a 0.3% gain but ASX iron ore miners could outperform.
The spotlight is on the Fortescue Metals Group Limited (ASX: FMG) share price, BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price this morning.
Iron ore can set new record highs
This is particularly because experts believe there is more room for the commodity to rally even after its spectacular run.
“The red dirt has seen its price more than double over the past 12 months from $US83.40 a tonne on April 27, 2020,” the AFR quoted S&P Global Platts as saying.
“And as the world turns to infrastructure to stimulate its post-COVID-19 recovery, and as other industrial metals show comparable rises, it could indeed be reasonable to ask how much further this rally could go.”
Why the “supercycle” is more enduring this time
The wave of infrastructure stimulus is a key difference between this iron ore rally compared to the last one in 2011.
Back then, China was the single driving force behind the surging iron ore price. This time, the bull run could be more enduring as is coming from other major economies, including China.
Another reason why experts believe the iron ore price has not peaked is because of high steel prices. Steel mills, the consumers of iron ore, have reported bumper profits in the first quarter.
Make hay while the sun shines
The record price for iron ore is unlikely to dampen demand when steel producers are rushing to make hay while the sun shines.
But there are two potential headwinds facing our iron ore producers. The first is growing calls for the Chinese government to step in to restrict speculators. Steel mills are blaming these short-term traders from driving the iron ore price above fundamentals.
The other is expectations by some that the profit boom for steel mills is starting to slow. If their profit margins come under pressure, this will likely drag on the iron ore price too.
For now at least, the iron ore bulls are firmly in control.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Fortescue Metals Group Limited and Rio Tinto Ltd. 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.
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