I am very excited about the prospects for iron ore miners. Iron ore prices in China beat expectations, hitting $153/metric ton on Jan. 31, 2013, and continued to move up to $155.10/metric ton by Feb. 8. March contracts had also risen to $157.75/metric ton on the same day. Prices were surging as smaller steel mills continue to restock ahead of Chinese New Year celebrations. A Singapore iron ore trader was quoted as saying they are buying in anticipation of greater demand for steel after the New Year. Chinese iron miners had a low output as a result of a very harsh winter and most iron ore stocks at steel mills were low heading into the Chinese New Year, necessitating buying on the world market. Now it is all quiet on the iron trading front
Chinese New Year celebrations have begun in earnest, and there is a bit of anticipation for earnings reports from the four largest iron ore mining stocks. The Q2, Q4, or full year reports for these stocks come out as follows: Vale SA (ADR) (NYSE:VALE) delivers its Q4 report on Feb. 27, Rio Tinto plc (ADR) (NYSE:RIO) announces full year earnings on Feb. 14, BHP Billiton Limited (ADR) (NYSE:BHP) reports full year earnings on Feb. 20, and Fortescue Metals Group Limited (ASX:FMG) delivers its Q2 report on Feb. 20 as well. These reports probably will not be spectacular, but may hold some surprises. Last October iron ore prices hit an extended bottom at $87/metric ton. What we want to see is the higher iron prices and shipping rates of late November and all of December putting some nice profits back on the table. There should be upward movement in all four stocks after the reports. One of the big questions is whether or not the high iron prices will be sustained through the spring. Estimates of average iron ore prices for the full year have been moving up from $110/metric ton a month ago to as high as $130/metric ton a week ago. Just this week we had an estimate of average prices of $140/metric ton. This means big profits for the producers.
Iron ore is the cash cow for these big miners, but the largest three (Vale, Rio, and BHP) dilute their iron earnings with global operations, though they are much better able to survive low iron prices. These three are like mutual funds or exchange traded funds unto themselves. They have global operations with so many minerals and metals that I could write a whole article about each of them.
Vale has slipped in price quite a bit over the last few years. They have been beaten down by the semi-socialist government of Brazil, but they are the darling of the nation. There is hope and they seem to be on a roll. The stock seems under-priced. They just received a government contract for a major National rail concession in Brazil in preparation for the 2014 World Cup and 2016 Olympics. They are also building rail lines in Mozambique and have mineral concessions in 38 countries. As for iron ore production, they are set to produce 500 million tons in Brazil this year, and with high iron prices we are talking billions of dollars in profit.