The iron ore price appears to have stabilised providing a much-needed sense of relief for the miners who produce it.
While the commodity was trading around US$135 a tonne in 2013, it experienced a major setback last year where its price plunged to a low of US$66.84 a tonne just prior to Christmas – a decline of 50.5%. However, according to data from Metal Bulletin Ltd, the steelmaking ingredient has since risen to its highest level in a month at US$71.49 per dry metric ton.
The rise comes as a result of speculation of stronger Chinese growth. The world's second largest economy is said to be accelerating infrastructure projects this year which would indicate stronger demand activity. Given that port stockpiles have declined over the last six weeks, according to The Australian Financial Review, a restocking process over the coming months should support the commodity's price.
Indeed, stocks in the iron ore sector have benefited from the commodity's rally recently. Fortescue Metals Group Limited (ASX: FMG), for instance, has surged 19% since its December low while Rio Tinto Limited (ASX: RIO), Australia's largest iron ore miner, has jumped 9.7%. Some of the nation's smaller players have jumped even higher with Atlas Iron Limited (ASX: AGO) and BC Iron Limited (ASX: BCI) having rallied 113% and 87% since their lows last month, respectively.
Although these stocks have delivered fantastic gains recently however, they still represent highly risky investment prospects. While the price of iron ore may have stabilised for now, the world's largest miners continue to ramp up their production levels which would suggest a lower price in the medium- to long-terms.
As such, while there may be an opportunity for short-term speculators in the sector, those investors with a long-term focus should continue to avoid the sector and focus on other compelling investment opportunities.
