Iron ore bulls and shareholders in the likes of Rio Tinto Limited (ASX: RIO) or Fortescue Metals Group Limited (ASX: FMG) will welcome the news that the red metal shot above US$72 a tonne overnight.
Still, iron ore has been in a downward trend over the course of 2017 falling from highs above US$90 a tonne at the start of the year to today's level that actually represents a healthy rebound from lows around US$55 a tonne over the winter.
This goes to show the unpredictable nature of the iron price over the short term as it is almost solely driven by the unknown level of Chinese demand for the key steel-making ingredient required to fuel China's construction boom.
Iron ore is manufactured into reinforcing bar (rebar) that is used as mesh of reinforcing wires to hold and strengthen concrete buildings in tension. China's construction and economic super-cycle from the early 2000s to 2012 is over now though as the one-party state looks to invest less in infrastructure and construction.
This reality has sent early-cycle commodities like coal and iron ore into a bear market since 2012, with prices steadily declining from a super-cycle fuelled US$150 a tonne during the boom.
One hope for iron ore bulls is a return to a greater inflationary environment that could support commodity prices across the board. Or an unlikely reversal in economic planning policy by the Chinese state that could see demand growth for iron ore lift again.
High retail trading volume stocks like BHP, Rio and Fortescue Metals will often be touted as buys by sell-side brokerages that do some research on the side to generate brokerage fees. However, whether mining stocks remain good long-term investments is dubious.
Many commodity bulls will favour BHP Billiton Limited (ASX: BHP) for its diversity and low cost of production. However, over the past 10 years BHP's value is down around 25% while the miner issued equity and grew its debt pile, which means it ticks just about all the boxes as an investment to avoid in my opinion.
Whether iron ore remains in a long-term bear market in 2018 or rebounds on the back of unexpectedly strong Chinese demand is hard to know, but I can't help thinking there are better investment opportunities out there for smart investors focused on the blue chips of tomorrow not 2012.
