The iron ore price is tumbling and these shares could be next

BHP Billiton Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO) are not immune from share price falls.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Iron ore investors were given something of a reality check overnight as the commodity plunged to reverse some of its recent gains.

Indeed, iron ore prices had been tearing higher recently. After hitting a low around US$38 a tonne in mid-December 2015, the commodity surged above US$60 a tonne earlier this week. In fact, it experienced its strongest one-day rise in history on Monday night, hitting US$63.75 a tonne and sparking hope in the market that the iron ore rout was finally over.

Part of this was driven by actions and comments from China's regulators, which are aiming for 6.5% annual growth for their economy over the next five years. Investors were hopeful that this demand could help balance out the market's oversupply situation, helping the iron ore price to recover.

Of course, there were always doubts regarding the sustainability of the rally, as we noted here. According to The Australian Financial Review, a number of banks, including Goldman Sachs and Citigroup, also cast their doubts suggesting that the gains wouldn't last and that iron ore would instead continue the downwards spiral it has endured over recent years.

Unfortunately for investors, it looks as though those analysts will be right. Iron ore fell 0.2% on Tuesday night and another 8.8% overnight to trade at US$58.02 a dry metric tonne, according to data from The Metal Bulletin.

Shares across the sector, including the likes of Rio Tinto Limited (ASX: RIO) and BC Iron Limited (ASX: BCI) have actually risen today despite the heavy overnight fall, although the pair have fallen in recent days. On the other hand, BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) have both fallen today, although only by 0.5% each.

While many investors eagerly bought into the recent rally, an element of caution is definitely wise. Indeed, The AFR even quoted Morgan Ball, managing director of junior producer BC Iron, as saying (my emphasis): "We have seen this surprising blip on Monday into the $US60s, we don't think it will stay there and it will come back." Rio Tinto and BHP Billiton are also reportedly somewhat bearish on the outlook for the commodity in the near term.

Foolish takeaway

Share prices across the sector have risen strongly in recent times, and those gains may be sustained if the iron ore price can stay around these levels. However, if it does continue to fall, as it did overnight, there could be more pain in store for those investors with exposure.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »