You could almost describe it as a 'fait accompli', that Australian investors have in unison resolved that the major domestic iron ore producers will survive and thrive at the expense of high cost producers both in Australia and globally.
As I said here if you are going to own iron ore producers, you definitely want to own the lowest cost producers. However, perhaps the real question needs to be, why have exposure at all?
Hear out those you disagree with
It's human nature to like receiving positive affirmation – people generally surround themselves with like-minded people and those they see eye-to-eye with. When it comes to investing this can be a dangerous thing!
Rather than seeking out opinions that reaffirm your view on a stock idea, it is much more beneficial to seek out contrarian views to test and attack your thinking from all angles. Afterwards you may still hold the same view but at other times – if you can be honest with yourself – you might just save yourself from a bad investment decision by admitting that you're wrong.
The Australian Financial Review is today leading with an article which quotes Mr Alberto Calderon a former BHP Billiton Limited (ASX: BHP) executive.
Mr Calderon has questioned the conventional thinking that high-cost Chinese iron ore miners – which supply around 25% of China's current demand – will be forced to close. He suggests instead that export nations like Australia will bear the brunt of closures as the market adjusts to excess iron ore supply.
Mr Calderon's views have significant ramifications for all mid-tier iron ore producers such as BC Iron Limited (ASX: BCI). His views could also be bad news for BHP, Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) share owners.
Time will tell if Mr Calderon's theory is accurate or not, but investors who fail to consider the contrarian viewpoint do so at their peril.
