Iron ore prices hit a record-high as aggressive, infrastructure-focused stimulus programs in China fuel booming demand for the key steel-making raw material.
As quoted in Financial Times, Iron Ore (62% Fe) hit an all-time high of $179/ton, up 114% year-on-year (YoY). In a bid to curb soaring iron prices, China announced that it will scrap tariffs on some steel products and specific raw materials starting May 1. Based on reports, Chinese steel mills saw flat margins in April as steep move on iron ore prices threaten profitability of steel industry. Political rift between Australia (60% of China’s iron ore imports) and China also continues to put upward pressure on prices.
For the Philippines, we believe nickel miners will benefit the most from the record-high iron ore prices as low-grade nickel (high Fe content) is used as substitute when iron ore prices are too high. Average price of low-grade nickel ore was at $38/WMT (up by ~90% YoY).
We continue to like NIKL (Target Price: PHP 6.25 per share) in the sector with revenues from low-grade nickel accounting for 50% of volume / 20% of revenues in FY20.