Beleaguered iron ore miners have sprinted out of the blocks in early trading after the iron ore price jumped 5.9% overnight.
The Spot iron ore price hit US$54.04 per tonne after BHP Billiton Limited (ASX: BHP) announced plans to slow its rapid Pilbara iron ore expansion. A project to debottleneck the inner harbour at Port Hedland was deferred, as the giant miner revealed it had managed to get production costs below US$20 per tonne.
In early trading, the junior iron ore miners, including Arrium Ltd (ASX: ARI) and BC Iron Limited (ASX: BCI) were rocketing ahead, up 9.7% and 30.8% respectively.
The news was also good for struggling mining services companies, with NRW Holdings Limited (ASX: NWH), RCR Tomlinson Limited (ASX: RCR), Monadelphous Group Limited (ASX: MND) and AJ Lucas Group Ltd (ASX: AJL) all posting gains of more than 3%. A host of other construction and engineering companies are on in the green today too.
But is this just a short-term bounce or a longer-term trend?
Unfortunately for investors buying into miners or mining services, the rally is likely to be short-lived. While BHP may have slowed down its rate of expansion, there are still huge amounts of iron ore supply coming on stream now and in the near future. At the same time, demand for iron ore, the key steel-making ingredient is likely to slow.
I'm afraid today's jump appears to be a 'dead cat bounce', and we could easily see iron ore prices plunge back down as early as tonight.
For mining services, the outlook is even bleaker, with mining investment yet to hit rock bottom. That means contracts are drying up and available contracts come with much smaller margins.
Foolish investors would be wise to avoid both sectors for now.
