Kumba Iron Ore’s share price lifted on Wednesday and Thursday in line with the positive sentiment that greeted China’s stimulus measures, which are expected to prop up demand for the commodity.
Iron ore prices made marginal gains to $92.25 a ton in afternoon trade yesterday, an improvement from lows of earlier in the week of around $91 a ton. The weakness in the iron ore price has prompted producers such as Kumba Iron Ore to focus more on costs.
However, on Wednesday, China – one of the world’s biggest consumers and markets for steel and other iron products – announced stimulus measures to boost consumption across the economy.
China’s politburo said China would deploy “necessary fiscal spending” to meet this year's economic growth target of roughly 5%, while acknowledging new problems and raising market expectations for fresh stimulus. A robust Chinese economy firing up demand for construction is considered a boon for iron ore prices.
The stimulus package announcement by China boosted shares in Kumba Iron Ore. @Lt_InvestorSA wrote on X on Wednesday that shares in the company had surged on the back of the Chinese “stimulant program”.
Shares in Kumba appreciated by 9% on Wednesday as it traded 3.99% stronger in afternoon trade yesterday at R382.42. Over the past seven days and 30 days, Kumba Iron Ore’s shares have firmed up by 5.11% and 1.42% respectively.
Investment analysts believe that if there is further recovery in iron ore prices, Kumba Iron Ore stands to benefit from positive sentiment regarding revenue and earnings. However, the Anglo American unit still has to navigate South African headwinds, which include high costs and rail and port logistics constraints.
In its latest financials, Kumba recorded an earnings decline of -26%, driven by lower sales volumes and worse-than-expected price realisations on iron ore due to timing issues. Kumba’s stockpiles, which are mostly located at its mines, have grown to a high of 8.2 million tons.
The company had a $12 a ton negative impact from worse-than-expected price realisations, with $8 a ton of this coming from products being priced one month after arrival in China, which hurt it during a period of falling iron ore prices.
About $4 a ton also came from provisional pricing effects for unpriced sales late last year. This had “resulted in Kumba’s realised price being much lower relative to the benchmark price than is normally the case”, said Seleho Tsatsi, investment analyst at Anchor Capital.
With the local steel market seen by analysts as small for Kumba, its focus on the export market will also be a big pressure point given the supply and demand dynamics on global markets such as China. South Africa is nonetheless one of the largest producers of iron ore in Africa, exporting $4.8 billion of the commodity in 2022.
BUSINESS REPORT