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With iron ore prices recently falling below $100, concerns are mounting about the outlook for Australia’s largest iron ore companies. So, are we facing a potential crisis, or is this a rare chance to acquire major mining stocks at a discount?
The ongoing economic slowdown in China and broader global instability have driven iron ore prices down to around $98—well off the mid-2021 peak of $220. However, the $98 dollar level has acted as a springboard for price gains in the past, suggesting a potential bottom may be near.
Australia’s heavy reliance on the materials sector means that fluctuations in iron ore prices have a significant impact on its biggest companies. While giants like BHP and Rio Tinto are closely tied to iron ore, some specialised stocks in the sector could benefit greatly if prices rebound. Here are three companies to watch:
Bluescope Steel (ASX: BSL) recently reported an FY24 net profit after tax of $805.7 million, down $203.5 million from the previous year due to lower steel prices and rising input costs. Despite these challenges, the stock has maintained an uptrend since 2012, and if it breaks through $24, a rally towards $30 in the medium term could be on the horizon.
Mount Gibson Iron (ASX: MGX) posted a FY24 net profit after tax of $6.4 million, a significant improvement driven by higher production volumes and favourable prices. Although the stock has been in a downtrend since May 2019, this positive news could signal a potential turning point. However, without clear confirmation of a price reversal, waiting for further developments in price would be the best approach.
Fortescue Ltd (ASX: FMG) is set to report FY24 results on 28 August, expecting a net profit after tax of US$5.88 billion, marking a notable increase from last year. The stock has seen a sharp decline since peaking in February 2024, now down over 40 per cent. However, given the three previous corrections in Fortescue have been around 50 per cent, there could be buying interest soon.
If the iron ore prices recover, these companies’ share prices could see a rapid increase. Therefore, watch closely for any upcoming opportunities.
What are the best and worst-performing sectors this week?
The best performing sectors include Information Technology, up over nine per cent, followed by Materials and Industrials, up over two per cent. The worst performing sectors include Energy, down over two per cent, followed by Real Estate, down over one per cent and Consumer Staples, down under half a per cent.
The best performing stocks in the ASX top 100 include WiseTech Global, up over 28 per cent, followed by Charter Hall Group, up over 15 per cent, and Brambles, up over 14 per cent. The worst-performing stocks include the A2 Milk Company, down over 15 per cent, followed by Domino’s Pizza, down over seven per cent and Dexus down over six per cent.
What’s next for the Australian stock market?
The All Ordinaries Index has gained over half a percent this week, building on the momentum from last week’s buying activity. As a result, the market has now reached a critical price level that warrants attention.
Since mid-July 2024, the All Ords has failed to provide a weekly close above 8,209 points, despite trading at or above this level on five separate occasions. There’s a saying that professionals close the market, and with the index once again hitting this level, we’re at a pivotal moment. If the All Ords closes above 8,209 points this week, we can confirm buyer strength, which will likely see a push to break the previous all-time high of 8,375.80. However, if it fails to close above 8,209 points, a swift retreat to the 7,900 level may follow.
Given reporting season’s impact on market direction, the final round of results next week will play a decisive role in determining the market’s next move. So far, the season has been positive, with more companies exceeding expectations, though the overall performance is down from last year.
With major players like BHP, Fortescue Metals and Ramsay Healthcare yet to report, expect volatility in the coming week with positive results providing the catalyst to drive the market to new all-time highs.
Additionally, next week’s CPI numbers are crucial to watch. A favourable inflation reading could push policymakers closer to an interest rate cut, which would further support rising market prices.
For now, good luck and good trading.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at www.wealthwithin.com.au.
Disclaimer:While Wealth Within holds an Australian Financial Services License (AFSL:226347) the information featured in this program is general in nature and therefore should not be relied upon. Before making any investment decisions, you should consult a licensed professional who can advise whether your investment decisions are appropriate for you.
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