Iron ore surge pushes Andrew Forrest’s Fortescue Metals to Australia’s sixth most valuable company
A softer market may await in 2021, capping the boom-like conditions for Australia’s iron ore miners.
Billionaire Andrew Forrest’s Fortescue Metals Group has surpassed Westpac as Australia’s sixth most valuable company after iron ore prices surged near decade-highs on rampant Chinese demand.
Fortescue - controlled by Dr Forrest - saw its market capitalisation skyrocket to a record $74bn as Chinese iron ore futures jumped by 8 per cent to $US175 ($232) a tonne on Monday.
The Perth producer eclipsed Westpac’s $73bn value on fresh concerns over iron ore supplies after Vale suffered a landslide at one of its Brazilian mines, ratcheting up tensions for China as it continues a buying spree that has propelled prices to a nine-year high.
Fortescue could now even have NAB in its sights, currently Australia’s fifth biggest company at $76bn, with its share price up by over 120 per cent so far this year amid a Covid-19 pandemic which has done little to thwart China’s insatiable demand for the steel-making material.
Still, a 50 per cent price jump in the last month alone is testing Beijing’s mettle, swelling miners’ earnings while undermining the profitability of China’s steel industry.
Even before the latest price rise, the China Iron and Steel Association said the “iron ore pricing mechanism had failed”. Its members have called on Chinese regulators at the State Administration of Market Supervision and the China Securities Regulatory Commission to investigate recent iron ore prices and “severely crack down on possible violations of laws and regulations”.
Iron ore prices could stay stronger for longer as China chews through its port stockpiles at record rates, according to Fortescue, with the miner hinting at a market shortfall that could spur soaring prices even higher. China’s steelmakers accounted for 95 per cent of the company’s iron ore revenue last year, and collectively buy about 87 per cent of Australia’s iron ore output.
The Australian government predicts the price surge will propel exports of the metal to a record $123bn in 2020-21 from $102bn this year which could even prove a conservative bet. It assumes iron ore will remain well above $US100 a tonne until mid-2021 before easing to just over $US75 a tonne by the end of 2022.
Australian supplies may also be under threat from the approaching cyclone season with shipping capacity already briefly curtailed earlier in December due to bad weather.
Market analysts have been frantically trying to keep up with the commodities appetite of China, which buys over three-quarters of the world’s iron ore. Some are questioning whether Beijing’s demand pick-up - which includes 5.5 per cent year on year growth in steel output - will continue into 2021.
“The pace of China‘s recovery since the first quarter of 2020 has kept markets buoyant and analysts scrambling to lift demand estimates,” Morgan Stanley analysts said. “But that also means that China is not fully in sync with the rest of the world going into 2021 – recovered, restocked and ready to begin countercyclical tightening, China’s demand is one of the key risk factors we see for the continuation of the bull market in 2021.”
A softer market may await in 2021, capping the extraordinary boom-like conditions for Australia’s iron ore miners.
“We see strong momentum carrying through the first half of 2021, before slowing property and infrastructure sectors initially show up in softer steel output,” the broker said.
Fortescue shares rose 4.93 per cent to $24.04.
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