Kumba Iron Ore Limited (JSE: KIO) has experienced a remarkable upswing, soaring by over 56% since emerging from its previous downtrend in August. This resurgence is fuelled by robust iron ore prices, showcasing the company’s resilience in a challenging market. In July, Kumba Iron Ore Limited reported a profit attributable to shareholders of R9.64Bn for the six months ending 30 June, reflecting a drop from R11.55Bn. Earnings per share contracted as well from R35.92 to R29.98.
Revenue for the six months was no exception, witnessing a decrease from R42.98Bn to R38.28Bn. Still, Kumba Iron Ore Limited remains optimistic about its full-year outlook. The company reaffirmed its forecasts, anticipating total sales between 36 million and 38 million tonnes, with production projected in the range of 35 million to 37 million tonnes.
In a landscape where many metal and mining companies in South Africa face challenges from falling prices, Kumba Iron Ore Limited stands as an exception. The graph below illustrates this exceptional resilience, with iron ore prices appreciating by nearly 5% in the last month. This positive trend in iron ore prices can be attributed to solid demand and ongoing supply risks. Adding to this momentum is the Chinese government’s commitment to issuing CNY 1 trillion in debt, specifically targeting infrastructure and manufacturing projects. This strategic move has sustained demand for the metal and further bolstered Kumba Iron Ore Limited’s outlook as we advance.
Technical
On the 1W chart, the recent surge in bullish momentum becomes evident. Since breaking out of the descending channel and advancing above the 25-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), the price has shown little sign of exhaustion, currently underpinned by support at R600.87.
Resistance is established at R641.92 and has previously shown strength in enforcing a temporary pullback. If the price remains above the R600.87 support, this resistance could come under pressure once more. Should it fail to withhold the buyers, the uptrend could continue toward the supply zone at R696.45, where a technical correction could occur.
However, should the price fall below R602.34, the 61.8% Fibonacci golden ratio could undergo a retest at R566.57, with the Fibonacci midpoint of R523.34 not far below. If a sustained downtrend shifts the price below these support levels, the multiple SMAs could provide psychological support, acting as an inflexion point to the market’s momentum.
Summary
With iron ore prices showing resilience in a challenging metal market, Kumba Iron Ore Limited has followed suit, enforcing a significant uptrend in recent weeks. As we advance, support at R600.87 could be a crucial level to look out for, as it could determine whether the current uptrend will be sustained into the upcoming weeks.
Sources: Koyfin, Tradingview, Reuters, Kumba Iron Ore Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
