CHICAGO, Jan. 10, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Mining , including BHP Billiton Limited (NYSE: BHP-Free Report), Rio Tinto plc (NYSE: RIO-Free Report), Fortescue Metals Group Limited (OTC:FSUGY-Free Report) and Vale S.A. (NYSE: VALE-Free Report).
The rise in global population, growth in the Chinese economy, urbanization of the Asian countries and the increasing requirements in the developed countries have created an unprecedented demand for minerals and metals. The metals & mining industry caters to this ever-rising demand through extraction (mining) and primary and secondary processing of these metals. However, of late the tepid global economic growth emerged as a major headwind for the global metal industry.
Mining - Ferrous: Iron
Iron Ore Price Trends
Iron ore prices had an overall good run in 2013, compared to other base metals. Price peaked to a high of $154 per ton in February, due to the restocking carried out by Chinese steel mills and heightened demand from steel end-consumers, particularly the Chinese construction sector.
However, prices dipped to a low of $114.8 per ton in June due to the growing apprehension over China's economic outlook. The situation soon improved as price regained ground supported by increased imports into China as Chinese infrastructure spending boosted demand, averaging $136.32 in November.
Iron Ore Industry Performance
Demand for iron ore remained relatively strong in 2013. Domestic supply in China was insufficient to meet the demand triggered by the steel industry and the housing market. Chinese imports thus rose during the year, significantly impacting the demand for the metal worldwide.
To capitalize on the rising prices and elevated demand in China, iron mining majors BHP Billiton Limited (NYSE: BHP-Free Report), Rio Tinto plc (NYSE: RIO-Free Report) and Fortescue Metals Group Limited (OTC:FSUGY-Free Report) have invested heavily in projects in the iron-ore rich Pilbara region in Western Australia to augment their annual iron ore production capacity.
Separately, Vale S.A. (NYSE: VALE-Free Report) was recently granted an environmental license for its $20 billion investment in new iron ore production capacity at its Carajas mining complex in northern Brazil. This will help Vale to scale up its iron ore production and will be the largest project in Vale's history as well as in the iron ore industry.
Iron Industry: Outlook
The major iron ore producers Rio Tinto, BHP Billiton and Fortescue Metals ramped up production in the later part of 2013, which will lead to a glut in supply in 2014. Furthermore, the world's top exporter Australia will increase its shipment as the abovementioned projects commence. Brazil and India will also hike their exports. In case this excess supply is not matched by adequate demand, it will expose the market to the risk of a decline in prices.
We believe the fate of iron ore prices now mainly hinges on Chinese demand. The emergence of Chinese industrial demand has facilitated a paradigm shift in the iron ore market over the last two decades.
China is currently the largest producer of steel and consequently the largest consumer of iron ore, accounting for around 60% of the global seaborne market. China's economy has risen 7.8% in the third quarter of 2013 compared with 7.5% in the second quarter. Iron-ore imports rose to a record 74.6 million tons in September triggered by an increase in demand for steel.
Thus, a rebound in China's metal imports along with improvement in global manufacturing will push iron ore prices upward. Furthermore, iron ore prices will be supported by increased demand from steel markets in India, Japan and South Korea.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
SOURCE Zacks Investment Research, Inc.