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Why the RBA’s latest minutes spell good news for these 3 ASX shares

The minutes from the RBA’s 1 September meeting reveal some solid tailwinds ahead for these 3 ASX shares. We take a closer look at why…
The post Why the RBA’s latest minutes spell good news for these 3 ASX shares appeared first on Motley Fool Australia. –

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The minutes from the Reserve Bank of Australia’s (RBA) 1 September meeting provide some revealing insights into the outlook for ASX shares in the mining sector. Particularly those digging up iron ore.

Atop keeping the official cash rate at the historic current low 0.25% and indicating the RBA is prepared to purchase additional Australian Government Securities (AGS) to maintain the central bank’s 3-year yield target of 0.25%, the RBA dug into China’s rebound from the COVID-19 economic slowdown.

The RBA board concluded that unlike most nations’ recovery paths, China is seeing production rebound much faster than its consumption. The bank points to China’s government policies focusing more support on reviving business investment with less financial support for households.

While this means consumption in China is still below its pre-pandemic levels, Chinese industrial production is back to where it was before the virus shut down many of the nation’s factories.

What does this mean for Australia’s commodities?

According to the RBA, a big change in the demand and supply of commodities has been occurring. The bank noted that iron ore prices have been near multi-year highs. It said that atop the iron ore supply issues hindering output in Brazil, steel-intensive activities in China, like construction, have rebounded quickly, driving strong demand from China.

Despite some wider trade frictions and the viral slowdown in other sectors, the RBA board noted that “Australian exports of iron ore to China had remained resilient in recent months.”

Which ASX shares look to benefit?

With iron ore prices still near record levels (around US$130 per tonne), Australia’s big miners stand to make some outsized profits.

The BHP Group Ltd (ASX: BHP) share price, up 0.7% today, is still down 3.8% for the year. It has, however, come roaring back from its March lows, up 49% from 16 March.

The Rio Tinto Limited (ASX: RIO) share price, down 1.5% today, is up a slender 1.0% for the year. Rio’s share price has also gained strongly since 16 March, up 32%.

Finally, there’s this year’s star player in the big ASX miners’ club, Fortescue Metals Group Limited (ASX: FMG). The Fortescue share price closed almost flat today, but it’s up an impressive 65% so far in 2020.

Now a lot of other factors come into play which will determine these big miners’ future share prices. But Chinese demand driving high iron ore prices is certainly a welcome tailwind for their shareholders.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why the RBA’s latest minutes spell good news for these 3 ASX shares appeared first on Motley Fool Australia.

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