Monsters of Rock: Macquarie says rising iron ore prices bring big profits to BHP, MinRes
Mineral Resources (ASX:MIN) could experience a big reversal of fortunes in the second half of 2022 after dropping its dividend in the half.
The Chris Ellison-led miner suffered a shock underlying loss of $36 million as its iron ore revenue slumped in the first half of FY22.
Along with collapsing prices, which included increasing discounts for its low-grade ore, higher transportation costs and inflation ravaged the company’s normally strong profits.
But it could be a big turnaround in the second half of the year after iron ore prices surged from a low of US$87/t in November last year to a year-to-date high of 162, US$75/t for 62% benchmark iron ore. fines on Monday.
Prices remained firm at the start of 2022 as Chinese steel demand showed signs of rebounding from a slump towards the end of last year.
A recent streak has also been fueled by force majeure statements from high-profile Ukrainian producers.
The country that was invaded by Putin’s Russia was the 5th largest exporter of iron ore in 2021.
Freight rates, the cost of which is usually deducted from the price of iron ore realized by the company by the buyer, have also fallen to normal levels.
Macquarie’s commodities office thinks MinRes is showing earnings up 60% currently on its FY22 estimate. MinRes’ $9 billion shares are down 20% year-to-date , but rose 2.22% this morning.
Meanwhile, BHP Inc (ASX:BHP) is up 43% in earnings, with strengthening momentum across the sector, Macquarie said.
Macquarie had a price target of $76 on MinRes ($48.03) yesterday, and Macquarie says it remains positive on iron ore stocks with outperform ratings on every iron ore stock outside of Fortescue (ASX:FMG).
Macquarie says he expects infrastructure spending to pick up (bullish for steel demand) after China set its 2022 economic targets at the National People’s Congress this week, margins for steel mills in China having increased sharply in recent weeks.
“Macquarie’s Commodities Strategy team expects infrastructure spending to accelerate after the NPC meeting,” they said.
“The team has also seen increased easing of property policy by municipal governments to incentivize home buying, although property sales have remained weak since the start of the year.”
“We note that the average CY22 YTD iron ore price is $138/t, 26% higher than the December 2021 quarter average of $110/t.”
Iron ore miner stock prices today:
Nickel Mines shuts down
Shares of Nickel Mines (ASX:NIC) slumped in early trading, facing a brutal defeat after a dramatic short squeeze that doubled prices to over $100,000/t in just hours of trading, this which prompted the London Metals Exchange to close the market.
The $3 billion capped miner saw 22.7% of its value wiped out this morning before it suspended trading in its securities.
Until yesterday, the LME nickel had never traded above US$55,000/t. Stocks have been tight in recent weeks, a situation made worse by Russia’s war with Ukraine.
Russia’s Norilsk is the world’s largest producer of refined nickel for stainless steel and electric vehicle batteries.
Indonesia’s emerging nickel smelter producer, which says its expansion plans over the next two years will make it a bigger producer than mining giant BHP, is closely linked to Chinese nickel and stainless steel giant Tsingshan .
Tsingshan, through its subsidiary Shanghai Decent, is a major investor in Nickel Mines and holds stakes in its RKEF NPI mills.
Reports suggest that Tsingshan and his boss Xiang Guangda – a Chinese trader and entrepreneur colloquially known as Big Shot – could lose billions on the short bets they made on the fall in the price of nickel after this week’s market madness.
The price was set at US$48,063/t, as of Monday’s close, with trades made yesterday canceled and no certainty on when the market will reopen.
Nickel Mines stock price today: