4 things BHP, Rio Tinto and Fortescue investors should consider

Iron ore majors BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) have all taken a breather in recent weeks after a huge run up from last November lows. 

During this time, iron ore prices have also eased from early February highs of US$150, now back down to the mid US$130 level.

Iron ore spot prices

With iron ore stocks neither surging or plunging, here are 4 things to consider in the meantime.

Chinese regulation 

Increasing oversight from China’s top economic planners such as the National Development and Reform Commission (NDRC) and State Administration for Market Regulation (SAMR) has weighed on iron ore sentiment. 

According to Fastmarkets, iron ore traders in China are “shelving stock replenishment plans due to market uncertainty about further regulatory measures”. 

This week, the NDRC reiterated its plans to step up supervision of spot and futures markets for iron ore in an attempt to stabilise prices. 

This could be viewed as a near-term headwind for Chinese iron ore sentiment, but ultimately, supply and demand will dictate where prices will go.

Chinese stimulus

It seems counter intuitive for China to throw a tantrum over rebounding iron ore prices and then proceed to buoy the parts of the economy that consume iron ore.

Last week, China’s finance minister set out plans to strengthen fiscal and monetary policies including greater tax and fee cuts, and stepping up central government payments to local governments. 

At the same time, the People’s Bank of China (PBOC) has started urging banks to boost mortgage and developer loans.

The PBOC said it wanted Shanghai banks to keep annual growth rates for real estate mortgage loans at least flat compared to last year.

This is good news for iron ore as China's construction sector typically accounts for 50-60% of domestic steel consumption, according to the Office of the Chief Economist.

Adverse weather 

The Bureau of Meteorology in WA said it expects a “severe tropical cyclone impact to the east Pilbara or west Kimberley coast is forecast on Wednesday or Thursday.” 

This could disrupt iron ore operations throughout the region. As well as iron ore shipments coming out of Port Hedland.

Russia-Ukraine 

Russia-Ukraine tensions are raising supply concerns for iron ore and steel industries. 

Earlier this week, Japan’s Nippon Steel flagged a possible shortfall in supply as it currently imports 14% of its iron ore pellet feedstock from Russia and Ukraine.

"We expect little impact as we have decided to switch supply sources to Brazil and Australia in the event of a crisis," Hirohito Mori, Nippon Steel executive vice president, told Reuters.

Conversely, executives from Brazil's mining giant Vale SA said:

“We've been hearing and receiving calls from our clients in Europe, in the East Europe to support them, but we are trying to arrange our supply chain to help them, but there is a limited action for the shortage in short term."