Steel demand to increase 4% in 2021
While Iron Ore is not as popular a metal as Gold on the TSXV, the news on the Iron Ore front is that the World Steel Association is projecting an increase in steel demand relative to 2020. Iron Ore and Gold mining stocks on the TSXV are seeing prices increase. For Gold it is more than understandable. It is a solid investment particularly when an inflation and currency hedge becomes important. However the World Steel Association recently released their Short Range Outlook. This is especially important when observing the mere fact that Iron Ore has in fact outperformed Gold by a factor more than 2x.
Iron Ore vs Gold
Since February 5th, Iron Ore has performed more than twice as well as Gold. See for yourself:
The COVID-19 pandemic had shut down economies worldwide in order to prevent their medical system from being overwhelmed – absolutely the right decision given the incredibly dangerous nature of this virus. This had a negative impact on steel demand. This did not result in a significant drop in prices, in fact it resulted in significant price increases because there was far greater impact on supply, and China had reopened their economy earlier. Brazil was also suffering from supply disruptions from COVID-19, and they are a major exporter of the metal.
The World Steel Association is projecting a 3.8% increase in steel demand relative to 2020. Given the significant jump in prices this year, for near producing Iron Ore mines on the TSXV this will be seen as a major catalyst to increase Iron Ore demand, and consequently Iron Ore prices. An increase in demand relative to 2020 is another bullish indicator for Iron Ore, the primary component used in manufacturing steel.
Gold has not been the underachiever either. Having broken all-time highs, and gaining interest from investors such as Warren Buffet, this is a fantastic time to buy Gold mining stocks.
Approximately 47% of the world’s mining companies are listed on either the TSX or the TSXV. This is more than any other market in the world! As of this article there are 922 mining companies on the TSXV alone. There is a lot of information to sift through, and finding the right investment requires professional research.
The future of Iron Ore
Along this demand increase, there is also the prospect of worsening trade war between China and Australia. China had implemented protectionist measures against Australian imports in a variety of sectors, but not Iron Ore. Analysts and pundits across the board do not believe China will head that direction as well, and for good reason. They are the largest importers of this commodity, and their demand appears insatiable.
China has been searching for alternative sources of Iron Ore, which does go contrary to popular opinion. It is reasonable to hedge one’s bets and consider the possibility of China buying from any number of sources at Australian miner’s collective expense.
From a technical analysis standpoint, it appears as Iron Ore has breached resistance again:
Currently trading at a price of $120+ per tonne, the trajectory of this metal has been upwards.
How to position yourself
An excellent approach to investing in this environment is to buy a near-producing ultra-high grade mine, with a deposit outside of Australia. We remain highly bullish on Black Iron Inc (TSX:BKI). When we wrote our report, Iron Ore was trading at $100 per tonne, and our analysis determined a price of over $3 a share for BKI using that price. At the current price it is worth $5.20 a share if we are very very harsh using a very steep 20% discount rate, and $13.44 a share using the standard market discount rate of 10%. That means this stock is worth almost 9,000% more than the current price!!!!
Full report below (July 6th, 2020):