Aussie Mining Profits and Reaping the Benefits of the Iron Ore Price
Australia’s luck doesn’t run out, does it?
I mean we’ve avoided the worst of the ‘rona. Our political leaders are patting themselves on the back for not being like other countries. Aussies can get back to business…
Or can they? Perhaps by avoiding the worst of it we’ve really only just delayed the impact.
But we’ll have none of that bad news right now.
Australia’s more popular than ever.
Well at least its rocks are…
Aussie dollar will go higher
You might not be able to get into the country but we sure as hell can get our rocks out.
War of words or not, our strained friendship with China hasn’t stopped them buying up iron ore by the boatload. Our coal is still bobbing around in their ports, but that’s a conversation for another time.
Today’s chat is about basking in our ongoing prosperity.
Whether our Chinese Communist Party (CCP) buddies like it or not, they need iron ore for their construction sector. Friend or foe, there ain’t no iron ore like Australia’s.
Because of the tragic accident with a dam tailings wall at Vale SA’s [NYSE:VALE] Brazilian mine in January 2019, the CCP have been forced to buy more iron ore from us than the much more malleable friends over in Brazil.
A year on from the mine accident and Vale are still crippled by problems. All of which are reducing the global supply of iron ore.
Then just seven days ago a ship loader can’t fire at a port in Brazil…sending the iron price soaring once more. Apparently, a dock at this same port closed a few weeks before because of a ship collision.
Vale can’t catch a break.
But their ongoing misfortune adds to our continuous run of luck.
With the iron ore price above US$170 per tonne, it’s keeping the Aussie dollar up around 77 US cents. There’s a couple of analysts that reckon the Aussie dollar will hit 80 US cents cents in the coming months.
While the high Aussie dollar is exactly the opposite of what the Reserve Bank of Australia wants, the three kings of iron ore — Rio Tinto Ltd [ASX:RIO], BHP Ltd [ASX:BHP] and Fortescue Metals Group Ltd [ASX:FMG] — are looking at shipping record iron ore volumes this year. No doubt this’ll boost their profits for shareholders.
The short version is that Vale’s ongoing woes force the Chinese companies to increase their iron ore purchases from us, whether they like it or not.
The downside for our friends in China is that the higher iron ore prices — and higher coal prices — are reducing profit margins for their steel producers. The real question for anyone wanting to invest in iron ore stocks, is just how long with the CCP allow steel makers to produce at loss?
In the meantime, it’s likely that a select group of stocks are going to keep moving higher while the CCP has no other stable supplier to go too.
However, should Vale ever stabilise their supply issues, it’s unlikely our luck will end there.
Towards the end of last year, some market watchers suggested there was a ‘commodity supercycle’ about to begin.
The reason? The enormous ‘energy transition’ about to take place is going to require an even greater amount of the Earth’s resources.
I’m not on board with this idea that we’re about to see a commodities supercycle. I don’t believe all commodities will benefit. For example, I find it very hard to believe that coal is suddenly going to see an increase in demand…
Nonetheless, the energy transition can only happen with the use of metals and minerals you’ve never heard of. Some of them I can’t even pronounce.
Rather than a broad ‘supercycle’, I reckon we’ll see select group of commodities raging higher as this energy transition unfolds…
How will Aussies fare? Well, we hit the geological jackpot. Stay tuned, I’ll show where to look over the coming weeks.
More turbulent days ahead
Of course, this never-ending run of luck benefits a select group of Aussies. Mining profits aren’t distributed equally.
Being resource rich means that keen investors will want to keep their eye on the metals and mining sector.
Especially as we have more turbulent days ahead.
Like I mentioned at the start, perhaps we haven’t avoided the spicy cough. Rather we may have just delayed its impact here.
This is something Jim Rickards talks about in book The New Great Depression.
Shutdowns and stimulus didn’t help the economy. They just put more money into an already broken financial system.
Jim’s editor Nick Hubble doubles down on this.
Nick has written an exclusive Australian-only chapter to compliment Jim’s work. In it Nick points out that our ‘success’ in next to nothing virus numbers means we are far more suspectable to an outbreak when the boarders reopen.
In order to protect your wealth, you need to understand the ongoing health implications of the pandemic. They simply don’t go away with a vaccine and some government money.
Want to know more? Keep your eyes peeled next week. I’ll show you how you can be one of the first in Australia to get your hands on Jim’s latest book.
Editor, The Daily Reckoning Australia
PS: Why Australia is set to become the next ‘gold epicentre’ — which could result in a HUGE spike in Aussie gold stock prices. Click here to learn more.