Iron ore prices are still rising. Here’s how Macquarie ranks these global players

There is huge interest in commodities at the moment and prices have been surging. Gold has broken out, lithium remains buoyant, copper is on fire, and oil prices are solid. 

There is one bulk commodity, however, that captures the interest of Australian investors like no other. I speak, of course, of iron ore. Responsible for one in every five of this country’s export dollars, it is the backbone of our great nation. 

According to Trading Economics, spot prices have climbed over 10% since the beginning of 2023, hitting a seven month high in late January. Prices are also up circa 50% since November last year. 

For anyone unfamiliar, the iron ore benchmark is the 62% fine iron ore grade. Its price is dictated by the spot cost and freight for delivery at China’s Tianjin port. 

The one year chart for benchmark iron ore prices (source: TradingEconomics)

Steel with us? A strong 2023 thematic 

Market Index is no stranger to iron ore coverage. 

The commodity has come back onto the scene following a shocker 2022 for steel forecasts borne from Chinese lockdowns. 

A key driver behind the iron ore rally we’re seeing play out is a recent rebound in data for the Chinese manufacturing sector, after three months of contraction. 

Our latest reports include:

• Iron ore prices soar 58% in three months. Here are Citi's top picks 

• Has iron ore run its course?: Citi's take on three heavyweight miners

• Fortescue's Q4 results: Iron ore shipments soar to new heights

• Comparing iron ore rallies and why the current one can continue: Morgan Stanley 

Latest Macquarie research 

Today, we're looking at which global iron ore stocks Macquarie has its eyes on, and where the investment bank stands on each.

On Wednesday, Mac highlighted that weekly shipments from Australian majors were higher in the latest data (that’s last week, or, week 5 of 2023.) 

“The combined shipments for Rio Tinto, BHP and Fortescue rose 4% WoW, with higher output from RIO outpacing lower volumes from FMG. We note shipments at BHP remained largely flat WoW at 5.5mt,” analysts noted. 

Chinese blast furnace throughput also remains above recent levels, however, margins are down on lower steel prices. But the bank is bullish on domestic demand. 

“Macquarie commodity team has highlighted that economic growth in China in 2023 is expected to be led by domestic consumption,” analysts for the bank wrote. 

“This implies that there may be no urgency for the government to announce aggressive stimulus policies to revive the economy, making steel demand a key area to follow in the near term.”

Analysts also underscored ongoing robust sentiment buoyed by data reflecting strong steel demand. 

A rundown for the time-poor 

• BHP Group (ASX:BHP)—price target (PT) of $52.00 [OUTPERFORM]

• Mineral Resources (ASX:MIN)—PT of $126.00 [OUTPERFORM]

• Deterra Royalties (ASX:DRR)—PT of $5.00 [OUTPERFORM]

• Rio Tinto (ASX:RIO)—PT of $121.00 [NEUTRAL]

• Champion Iron (ASX:CIA)—PT of $7.50 [NEUTRAL]

• Mt. Gibson Iron (ASX:MGX)—PT of $0.60 [NEUTRAL]

• Fortescue Metals (ASX:FMG)—PT of $21.94 [UNDERPERFORM]

Let’s take a quick look at the bank’s case for each stock. 

BHP Group (BHP)

BHP remains Macquarie’s preferred large cap global iron ore stock. 

Its price target for BHP reflects Total Shareholder Return (TSR) of 14%.

“The Western Australian Iron Ore (WAIO) division produced and shipped 74.3mt and 72.7mt of iron ore respectively in the 2QFY23, both 3% higher QoQ,” analysts wrote. 

“We forecast FY23 shipments to be 286mt, which is in the upper half of the guided production range (278-290mt,100% basis).” 

BHP's one year charts

Mineral Resources (MIN)

Macquarie highlighted its positive was unchanged given signs iron ore outlook could be weakening are, in the case of Mineral Resources, offset by the bank’s more robust outlook for lithium, which the miner also produces.

Its price target for MIN reflects a TSR of 47%. 

Deterra Resources (DRR)

Macquarie likes Deterra, because its analysts perceive the stock as having less to lose if iron ore prices drop. 

Its price target for DRR reflects a TSR of 7%. 

“DRR offers low volatility exposure to iron-ore via its royalty derived from BHP’s production at Mining Area C which is tracking ahead of schedule,” analysts wrote. 

DRR's one year charts

Rio Tinto (RIO)

Macquarie whacked a “NEUTRAL” ranking on RIO but was positive about the giant’s week 5 shipments increasing 25% over week 4. 

Its price target for RIO is lower than the current price of $124.40 (as at 1605 AEST Wednesday 8 February 2023). 

“At the 4Q update, RIO’s reiterated its CY23 shipment guidance of 320-335mt (100% basis), implying no growth YoY.”

Champion Iron (CIA)

Macquarie also gave Champion a “NEUTRAL” ranking. 

Its price target for CIA reflects a TSR of 7%. 

“The shipment rate for CIA has been volatile but on average in line with expectations. The production ramp-up at Bloom Lake phase 2 will see production capacity increase to 15mtpa, with commercial production achieved in December 2023.” 

CIA's one year charts

Mt. Gibson Iron (MGX)

The only entry-price level stock on the list, Macquarie has filed Mt. Gibson under “NEUTRAL.” 

Its price target for the company reflects a TSR of 2%. 

“Shipments from smaller ports in February to date were 111mtpa, which was higher than our implied capacity target of 105mtpa. Shipment volumes from Geraldton (MGX) were lower MoM at 10mtpa.” 

Fortescue Metals (FMG)

The only stock to be hit with an “UNDERPERFORM” ranking from Macquarie is Fortescue Metals. 

Its price target for the company reflects a downard TSR of -14%. 

Macquarie analysts noted that recent volumes from FMG were lower. 

“The shipping rates for the March quarter are usually the lowest for Australian majors as most of their operations are impacted by adverse weather conditions in the cyclone and wet season. We also expect RIO to enter a maintenance-heavy quarter after a strong push for its December year-end,” analysts clarified. 

However, the bank’s research team is optimistic for FMG’s future in the next two financial years. 

“FMG boasts great upside for FY24E-FY26E at 76%-120%.

FMG's one year charts