Should you be buying iron ore stocks as they rally?
Stock
Rio Tinto (ASX: RIO) $83.15 as at 29/01/2019
Fortescue Metals (ASX: FMG) $5.05 as at 29/01/2019
BHP Group (ASX: BHP) $33.64 as at 29/01/2019
Event
Iron Ore names have bolted out of the gates today, trading strongly higher as they track the recent iron ore prices gains. The commodity rallied over the weekend following a serious tailings dam breach in Brazil which tragically killed 60 people and will affect 6 million tonnes of supply.
The disaster is the second in 3 years and Vale, the world’s biggest iron ore producer, will have a lot to answer for in the aftermath. But for now, what does it mean for the local stocks?
Fortescue is up ~5%, Rio Tinto has add over 3% and BHP is tracking close to 2% on the day.
Fortescue (ASX: FMG) Chart
The tailing dam failure will likely lead to reviews of Vale’s projects in Brazil, but it would be prudent for all iron ore miners globally to carry out works on their own structures in order to ensure that they are not at risk. So for the short term we have two catalysts for the iron ore price to move higher.
Rio Tinto (ASX: RIO) Chart
In the medium term, it is likely to result in a fall in approvals for new iron ore mines in Brazil, while it wouldn’t be unexpected to see further restrictions placed on Vale. So expect further tightening of supply in the medium term helping drive the price higher.
That said, is this now built into the price which has rallied more than 20% since November?
Market Matters Take/Outlook
