Last week saw the share prices of leading resource stocks continue to climb higher.
BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) finished the week up 6%, 6% and 11% respectively.
While the gains are of course welcomed by the multitude of Australian investors who own these commodity giants, the question everyone is asking is whether the strong recovery in the iron ore market – which has been the driving force for the rally in BHP, Rio and Fortescue's share prices – can last?
Last week saw the iron ore price soar to over US$70 a tonne thanks to a more positive view being taken on demand from China for this core commodity.
The sustainability of that demand is being questioned however by numerous commentators with even the weather being singled out as playing its part in boosting demand and hence prices.
According to news reports, the iron ore price has once again slipped below the US$70 a tonne mark overnight.
The other key factor which investors must consider is the exchange rate. The strength of the Australian dollar (buying US 77 cents) limits the benefits from the recent iron ore price rally for domestic producers.
With BHP, Rio and Fortescue's share prices having dropped 2.3%, 2.9% and 5.1% in early trade on Tuesday, shareholders might need to prepare themselves for a reversal of the recent trend.
