A Stock to Leverage High Iron Ore Demand

August 28, 2020
143 Views

Iron ore prices have hit a six-year high, increasing more than 24% in the year to date. This commodity metal is used throughout the manufacturing, infrastructure, and construction sectors. It’s one of the most valuable metal products on earth, both in terms of price per ton and its importance for global growth.

Investors seeking to leverage high ore prices can look to the stock market. Let’s see what’s pushing the market forward, and review one of the best iron stocks available today.

Factors Driving Price and Demand for Iron Ore

China’s manufacturing industry is responsible for a surge in demand this year. In July, the nation’s ore imports increased by 24% year over year. With COVID-19 largely under control in mainland China, its manufacturing sector is growing. Chinese manufacturing output has now increased for five consecutive months. Infrastructure projects are also contributing.

In addition to high demand, there’s a risk of a supply shortfall. Brazil is the world’s second-largest iron ore producer, but it has seen huge interruptions during the health crisis. Unlike China, Brazil has not contained the pandemic, and its supply chain is at risk.

The combination of growing demand and supply chain threats will likely keep iron ore prices high throughout 2020, and potentially into 2021.

The Best Iron Ore Pick on the Market Today

Fortescue Metals Group Ltd. (OTC: FSUGY) is an Australian iron ore producer that trades over the counter through American brokers. It is the fourth largest iron ore company in the world.

Fortescue is likely to see revenue growth thanks to higher ore prices and reduced competition from the Brazilian market. Australia’s iron ore industry has seen minimal disruption from the COVID-19 Pandemic.

The stock is up 168% in the year so far and has rallied 8.58% over the previous five days. In addition to growth potential on the stock linked to strong revenue prospects, it also offers a reliable dividend of $1.43. This equates to a yield of 8.24% at today’s price. This is significantly higher than the market average and it represents an excellent income opportunity for new investors.

This mining company is highly profitable with a gross margin of 48.63% and an EBITDA margin of 59.30%. The dividend is well-supported by Fortescue’s balance sheet.

Benefit from High Demand for Iron Ore

With increased demand out of China, and potential for global demand growth as COVID-19 is brought under control, iron ore is one of the best targets for investment as we head towards the fourth quarter.

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