The iron ore price hike came to an abrupt halt overnight as the commodity shed roughly 4.6% to be trading at US$57.13 a tonne, according to figures from the Metal Bulletin Ltd.
Although I couldn't see any news which wold specifically explain the sudden sharp pullback, it's likely that the market may have begun questioning the sustainability of the commodity's recent rise.
Prior to last night's session, the iron ore price had enjoyed one of its strongest rallies in recent memory. Driven by Chinese stimulus, a rebounding oil price and signs of a cutback in supply expectations from BHP Billiton Limited (ASX: BHP), iron ore prices surged from a 10-year low of US$46.70 earlier in the month and maxed out at US$59.88 a tonne during Tuesday's session, according to the Metal Bulletin.
However, the iron ore bears were back in force last night, selling the commodity down to US$57.13 a tonne. The sudden selloff will likely have investors on the back-foot again after many elected to invest in the sector in the hope of profiting from a huge rebound. In particular, Fortescue Metals Group Limited (ASX: FMG) and BC Iron Limited (ASX: BCI) have rallied hard and could be set for a significant pullback, especially if iron ore prices continue to dip over the next few sessions.
Unfortunately, there is no way of knowing which way the commodity will go next. While some analysts are suggesting that iron ore may have already found its floor below US$47, others are still concerned about the oversupply situation and believe the price could fall below US$40 before the end of the year.
While it is impossible to predict the commodity's exact price or when it will get there, the signs are certainly ominous. The world's largest miners are still set to flood the market with hundreds of millions of extra tonnage over the next few years, while Chinese demand for the steelmaking ingredient will likely continue falling, forcing the iron ore price lower.
Due to the lack of predictability and the high possibility of a pullback in the medium term, investors would be well advised to avoid the sector altogether.
