Iron Ore Stocks: Opportunity if You Have a | Australian Markets

I believe it’s important to have a look at particular commodities as half of our broad protection of the useful resource market.

Not simply as soon as however repeatedly revisiting them as themes evolve. So far this yr we’ve focussed on copper, uranium and gold.

But as you may recall, we additionally dug into the iron ore market in March.

Part of the rationale was the flurry of offers taking place on the time, which have been going nearly unnoticed by the market.

In late January, billionaire Andrew Forrest launched an off-market bid to amass Red Hawk [ASX: RHK].

This junior owns the Blacksmith iron ore deposit simply 30 kilometres west of Fortescue’s Solomon operations within the Pilbara.

That was adopted by Rio Tinto’s [ASX: RIO] $1.8 billion announcement that it will develop the Brockman Syncline project within the West Pilbara.

Around the identical time, Vale additionally introduced a large $12 billion growth for its Carajas iron ore project in northern Brazil.

While these bulletins flowed by way of, a long-fought-out bidding battle was going down between Fenix Resources [ASX: FEX] and Rio Tinto.

That was to amass the iron ore junior CZR Resources [ASX: CZR].

A bid that Rio finally received.

So, whereas many analysts level to the worsening provide/demand outlook within the iron ore market, M&A and development motion has been hovering in 2025!

So, is there an alternative?

Iron ore was among the many least interesting investment alternatives final yr.

And that outlook has gone from unhealthy to worse after the US tariff battle in opposition to China escalated final month.

Given its heavy leverage to world growth, this steel, a ‘one-trick pony’ within the commodity world, is very inclined to a trade battle which may weaken Chinese growth, the first driver of iron ore demand.

And tariffs comply with a long listing of unhealthy news gadgets for iron ore stocks…

Ongoing deflation in China. The nation’s weak real estate market AND important manufacturing cuts by the nation’s largest metal makers.

But that’s simply the demand facet.

Rio Tinto stays on observe to ship huge portions of NEW provide in 2025 from its giant Simandou iron ore operation in West Africa.

While the demand outlook seemingly collapses, Rio is getting ready to drown the market in more provide!

So, is there any motive to be optimistic?

Iron Ore: Stimulus nonetheless the primary recreation

Any useful resource investor would know that iron ore stocks are pegged to China’s financial outlook. Nothing a lot has modified over the past 15 years.

Except for one factor…

A key level of distinction that might make 2025 a good yr for this beaten-down market is that China has already laid out its stimulus playbook. That’s uncommon.

Last December, officers introduced ‘they would deliver whatever stimulus was needed to counter the impact of Trump’s trade tariffs.’

In different phrases, if Trump tariffs affect the Chinese financial system, the federal government will guarantee a serving to hand to prop up business and client confidence.

This might turn into a case of ‘bad news’ (within the kind of tariffs) that might spark a rally in iron ore stocks sooner or later in 2025.

So, if you’ve gotten the abdomen for added volatility, this could be one sector value a look—a counter-cyclical wager on a shock rally amongst iron ore stocks.

But how far will China take stimulus in 2025?

That’s the massive ‘unknown’ right here.

Iron ore stocks will stay rangebound if stimulus fails to focus on housing development or different infrastructure initiatives.

But that’s half of the risk/reward.

Iron ore stocks are already trading on the decrease finish of their multi-year pattern sample, as you’ll be able to see with FMG, beneath:

This affords a clear ‘line in the sand’ to work with.

A easy method to handle this risk is to position a stop loss beneath the decrease pattern line, proven above.

As long as FMG trades above this stage, traders will stay ‘in the game’ for a potential bullish announcement from China.

Who is aware of if that rebound will ever come, however at worst, you’re solely risking 10-15% of your capital by having a clear exit pathway.

A strategy like this affords a easy risk/reward.

In the meantime, you’ll be able to bank a healthy 8.5% dividend yield by merely ready for this to play out.

It’s one instance of how an unacceptably dangerous market will be flipped into an alternative with a healthy reward-to-risk outlook.

But solely IF you stick together with your plan.

While this strategy may resemble ‘trading’, a phrase that always deters long-term traders, it’s rooted in risk management.

As long as FMG stays above your outlined exit level, it will possibly keep in your long-term portfolio and gather that healthy dividend.

For more useful resource investment concepts like this, be sure to take a look at my advisory service right here.

Have a great weekend.

Regards,

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers

All advice is common advice and has not taken under consideration your personal circumstances.

Please search impartial financial advice relating to your own scenario, or if unsure in regards to the suitability of an investment.

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