After advancing a solid 80% last year, iron ore prices are trending above $160 per ton in 2021. It is worth mentioning that China has initiated a massive infrastructure stimulus to recover from the pandemic-induced slump, which calls for large amounts of iron ore. This combined with concerns of supply shortage from Brazil, which has been hit hard by the COVID-19 pandemic, drove the rally in iron ore prices last year— making it the best-performing major commodity in 2020. Notably, in December 2020, iron ore prices had attained a nine-year high of $172 per ton.
China to Support Iron Ore Prices
Steel production in China gained steam spurred by lift in infrastructure spending and renewed vigor in manufacturing activity. The Manufacturing PMI in China came in at 51.9 in December, marking the 10th consecutive month of expansion in factory activity. This is a major recovery from the all-time low PMI reading of 35.7 in February due to the coronavirus crisis-induced lockdown.
Per the latest data from the World Steel Association, steel production in China went up 5.5% to 961 Mt between January and November 2020 time period. Notably, global steel production was down 1.3% year over year to 1,670 million ton (Mt). However, China’s iron ore imports increased 11% to 1.07 billion tons in the first 11 months of 2020, beating full-year imports of 1.06 billion tons in 2019. Meanwhile, over the January-November 2020 time frame, Brazil exported around 308 million ton of iron ore worldwide, which was 5.5% lower than the year-ago comparable period. In November, Brazil’s global iron ore exports marked a new low of 29.2 million tons — a 6.5% decline from the previous month and a 0.4% dip year on year. This demand and supply imbalance is working in favor of iron ore prices. Industry Outperforms S&P500 & Broader Sector
Mining – Iron industry has gained 37.2% in the past year, outperforming the S&P 500 and the Basic Materials Sector’s rally of 17.7% and 30.2%, respectively.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Mining - Iron Industry currently carries a Zacks Industry Rank #1, which places it at the top 1% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. 4 Mining Stocks to Watch Out For
We suggest you to add these iron-mining stocks to your portfolio that are well-poised to ride on the rally in iron ore prices. We have handpicked four such stocks that have a Zacks Rank #1 (Strong Buy) and a
VGM Score of A or B. Our research shows that stocks with such a combination offer the best investment opportunities. You can see . the complete list of today’s Zacks #1 Rank stocks here Over the past year, these stocks have outperformed the S&P 500 and the Basic Material Sector’s growth of 17.7% and 30.2%, respectively. This is shown in the chart below. BHP Group ( BHP Quick Quote BHP - Free Report) : Headquartered in Melbourne, Australia, BHP Group engages in exploration, development, and production of oil and gas properties; and mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal. Efforts to make operations more efficient through smarter technology adoption across the entire value chain will continue to aid in reducing costs, thereby bolstering the company’s margins. Its focus on lowering debt is also commendable. BHP Group plans to simplify its coal portfolio and concentrate on higher quality coking coals to capitalize on demand from steelmakers. The company has six major projects under development in petroleum, copper, iron ore and potash, which will drive growth in the long run. The company has a long-term estimated earnings growth rate of 4%. The Zacks Consensus Estimate for the company’s ongoing fiscal 2021 earnings suggests year-over-year growth of 43%. The estimate has been revised upward by 13% over the past 30 days. It has a Zacks Rank #1 and VGM Score of B. The stock has appreciated 31.6% over the past year. Rio Tinto plc ( RIO Quick Quote RIO - Free Report) : Headquartered in London, the U.K., Rio Tinto engages in mining of aluminum, silver, molybdenum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium. The company boasts of a world-class portfolio of high-quality assets and continues to strengthen it by increasing investment in high-value growth projects to ensure long-term growth. It also remains committed to making its operations as efficient as possible, through the use of technology and innovation, including automation. A strong balance sheet and a disciplined capital allocation supports its ability to sustain production, increase investment in development projects (in high-return iron ore and copper), while delivering superior returns to shareholders. The Zacks Consensus Estimate for fiscal 2021 earnings indicates year-over-year improvement of 39%. The estimate has been revised upward by 15% over the past 30 days. The Zacks Ranked #1 stock with a VGM Score of A has gained 41.8% in the past year. Vale ( VALE Quick Quote VALE - Free Report) : Rio de Janeiro, Brazil based Vale produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and internationally. Backed by solid cash flow, Vale continues to lower debt position and strengthen balance sheet. The company strives to sustain margins by focusing on product line, improving productivity and cutting costs. Continued investment in growth projects, efforts to ramp up its coal business and transforming base metals business will also contribute to growth. The company has a long-term estimated earnings growth rate of 25.1%. The Zacks Consensus Estimate for fiscal 2021 earnings suggests year-over-year growth of 64%. The estimate has moved north by 22% over the past 30 days. It currently has a Zacks Rank #1 and a VGM Score of B. In a year’s time, the stock has surged 37.2%. Fortescue Metals Group Ltd ( FSUGY Quick Quote FSUGY - Free Report) : Headquartered in East Perth, Australia, Fortescue Metals engages in exploration, development, production, processing, and sale of iron ore in Australia, China, and internationally. Focus on innovation and productivity improvements has made it an industry leader in autonomy and continues to drive sustained low cost performance. Over the last decade, the company has generated an average EBITDA margin of 50% and an average return on capital employed of 23% — reflecting outstanding profitability and capital efficiency. Its sound balance sheet provides the company with the flexibility to support ongoing operations and the capacity to fund future growth. The Zacks Consensus Estimate for the company’s current fiscal year’s earnings has been revised upward by 24% over the past 30 days. The figure currently indicates year-over-year improvement of 54%. Its currently has a Zacks Rank #1 and a VGM Score of A. The stock has soared 172.4% in the past year. Biggest Tech Breakthrough in a Generation
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