Can China’s Selective Credit Growth Help Iron Ore Miners?
Aggregate financing, which measures liquidity, reflects the total funds provided by a financial system to its nonfinancial sectors and households.
Since China’s automobile industry is the second-largest consumer of steel after the real estate sector, it’s important to track its developments.
Real estate directly impacts 40 other sectors in China. It’s important for iron ore investors to track China’s real estate growth.
Chinese steel production has been hitting one record after another. This renewed vigor in the Chinese steel industry is due to higher steel prices.
China’s (FXI) (MCHI) steel production is hitting one record after another. The country’s June 2017 production hit a monthly record of 73.2 million tons of steel.
It’s important for investors to keep track of China’s iron ore import data because they provide a clue regarding the demand patterns for imported iron ore among Chinese mills and traders.
China’s iron ore port inventory shows the steelmaking commodity’s (GNR) demand and supply balance. It also measures the imbalance between supply and steel mill demand.
Iron ore exports from major ports in Brazil (EWZ) and Australia reflect the supply side of the iron ore equation.
Rio Tinto (RIO) released its operational update for 1H17 on July 18, 2017. Rio’s iron ore shipments fell 6% year-over-year (or YoY) to 77.7 million tons in 2Q17.
While iron ore prices have rebounded recently, analysts are still skeptical about the long term. Morgan Stanley has reduced its iron ore price forecast for 3Q17 by 23% to $50 per ton.
After reaching a peak of $95 per ton in February 2017, despite market participants’ concerns about higher supply and weakening demand, iron ore prices hit a low of $53 per ton in June.
On July 5, 2017, Bernstein upgraded BHP Billiton (BHP) from “market perform” to “outperform.”
Vale has a forward EV-to-EBITDA multiple of 4.3x, which represents a discount of 37% compared with its past five-year average multiple.
After gaining an impressive 404% in 2016, Cliffs Natural Resources (CLF) stock is now under pressure in 2017. It lost 17.7% of its value in the first half of 2017.
A major factor impacting mining companies’ revenues and earnings is commodity price—especially for iron ore—and analysts’ ratings take cues from prices.
While Vale SA outperformed peers including Rio Tinto (RIO) and BHP Billiton by rising 24.7% in 1Q17, its performance deteriorated significantly in 2Q17.
Rio Tinto (RIO) outperformed iron ore peers BHP Billiton (BHP) and Vale SA (VALE) by gaining 4% YTD in 2Q17, compared with Vale’s -7.9% and BHP’s -2%.
BHP Billiton’s (BHP) stock price lost 2% in the second quarter of 2017 and 0.5% in the first half of the year but has risen each day since the end of June as of July 12.
Iron ore prices have been on a roller-coaster ride so far in 2017. After reaching a peak of $95 per ton in February 2017, prices fell 40% to $57 per ton by June.
Cliffs Natural Resources (CLF) is trading at a forward multiple of 6.1x. This multiple implies a 37% discount to its trailing-five-year average of 9.6x.