Why Fortescue Metals and Champion Iron Share Prices Rallied Today

Fortescue Metals Group Ltd [ASX:FMG] and Champion Iron Ltd [ASX:CIA] both rallied this morning in trading. FMG climbed 3%, to a high of $6.35, and CIA was up more than 17%, to a high of $1.02.

What happened to Fortescue and Champion Iron?

Recently, the iron ore price hasn’t has the best run. Since February, the metal has slid from above US$94 a tonne, to below US$88 a tonne. But, this morning, the price of iron ore rallied back above US$88 a tonne.

Reported by Business Insider Australia:

Iron ore spot markets sprung back to life on Monday, ripping higher following another ridiculously large rally in Chinese steel futures.

And with the latter jumping again in overnight trade, the strength in spot markets may well extend into a second session on Tuesday.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped by 1.78% to $88.26 a tonne. It was the first increase since March 7, and the largest in percentage terms since February 27.

The rally is highly favourable to iron ore miners like FMG and CIA. Revenues for both companies rely on the price of iron ore. So, the more that iron ore rallies, the better off FMG and CIA are.

What now for the iron ore price?

It’s highly unlikely that the iron ore price will remain steady from here. In the last year, iron ore has traded at between US$48 and US$94 a tonne. It’s an extremely wide range, and can significantly affect earnings either way.

For the iron ore price to remain at a higher level, a lot will depend on China. The Chinese are one of the biggest importers of iron ore in the world. Turning the iron ore into steel, China is feverishly building infrastructure to grow their economy.

But it’s possible that you won’t see another turnaround in resources like we did in 2016. And if we do, you could be waiting a while. Unless commodity prices suddenly move higher, earnings will likely stagnate.

That’s why some investors prefer the smaller end of the market.

Smaller miners are a riskier investment, there’s no running away from it. But they could potentially grow earnings 10-fold in a short space of time. Resource specialist Jason Stevenson is no stranger to explosive resource stocks.

In his advisory service, Resource Speculator, Jason has made gains of 142%, 145% and 242%.

To find out more, click here.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

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Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


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