Rio Tinto Galvanized

Iron ore's price hit two year highs

Image source: M. Unal Ozmen, photo one, Aleksandr Pobedimskiy - Shutterstock

What's going on?

From tragedy comes triumph – at least for investors in Anglo-Australian mining giant Rio Tinto. Events over the last week have helped its Australian-listed shares hit 10-year highs (tweet this).

What does this mean?

Brazil is home to the world’s largest iron ore miner, Vale. But a deadly mining disaster in late January threatens to disrupt future supply. The price of iron ore has since jumped close to its highest in two years – and this surge has taken the share prices of miners along with it (apart from Vale, obviously). Anglo American gets over a quarter of its annual profit from iron ore; for Rio Tinto, that’s over 60%.


With Vale ordered on Monday to rein in its Brazilian operations, iron ore may now be in even shorter supply in 2019. Its subsequently higher price should drive even more profit for those miners, like Rio, who are able to extract and sell it.

Why should I care?

The bigger picture: China’s likely to move the needle.


China is the world’s biggest iron ore importer – but slowing economic growth could result in less demand than anticipated. (Iron’s used to make the steel which goes into cars and buildings – and a slowing economy means weaker demand for both.) There were some positive signs for the Chinese economy on Tuesday: US luxury brands Estée Lauder and Ralph Lauren both reported strong quarterly results helped by growing Chinese sales. On the other hand, tech company Seagate, which makes half of its sales to Chinese customers, warned of weaker sales ahead.



For markets: Commodities up across the board.


Prices of other commodities – including metals like copper and aluminum, as well as oil – have also had an attractive start to 2019. All else equal, their prices tend to increase alongside economic growth, which stokes demand. China’s a big buyer of most commodities, so investors might be reading the country’s increasing government support for its economy as an augury of higher buying and building activity to come.

Originally posted as part of the Finimize daily email.

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