The benchmark iron ore price for immediate delivery to the port of Tianjin in China was on Friday trading at $US47.80 a tonne, 2 per cent above its recent low of $US46.70. The 18-month fall from over US$150 to below US$50 has smashed the profitability of every iron ore producer and forced analysts and economists to continually rebase their valuation assumptions.
Big Moves
Analysts' best guesses of the medium-term iron ore price have plunged from over US$100 to below US$80 to now below US$50, showing that really no-one knows or can accurately predict exactly where the iron ore price will bottom.
This also shows that no analyst in the country can accurately predict the 'value' of any iron ore miners, nor the mining services companies that work for them. The key theory here being that a company making money by working for a company losing money probably won't be making money for too much longer.
Where to from here?
As always, analysts are divided! Credit Suisse recently downgraded the big miners BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) after it lowered its 12-month average price forecast to US$45 per tonne, while Morningstar did the same to smaller miners like Arrium Ltd (ASX: ARI) and Fortescue Metals Group Limited (ASX: FMG) after lowering its long-term estimate to US$60.
Deutsche Bank believes the price will fall below US$40 in 2015 and ABN Amro thinks it certainly isn't out of the question.
Time to Sell?
If you still own iron ore stocks like those mentioned above you're either stubborn, brave, silly, or have some vision of the future that no one else has. My view is that there are forces at work in the market beyond basic supply and demand, as my analytical brain simply can't understand the price fall of either oil or iron ore unless it was artificially inflated previously or artificially depressed now. This makes iron ore an even more risky proposition for inexperienced investors!
