MENU

The iron ore price could go to US$90 a tonne

Credit: iStock

Much to the delight of BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG), the rocketing iron ore price shows no sign of slowing.

According to Metal Bulletin the benchmark 62% fines index finished last week at US$79.61 a tonne, around 13% higher than last Monday’s close price.

The latest gain coincides with Chinese steel prices hitting a 30-month high after Reuters reported that China had cut 88 million tonnes of steel capacity this year. This was almost double its initial target to tackle overcapacity.

Whilst that is likely to be good news for steel prices, it shouldn’t necessarily be for iron ore. With China reducing its steel output, it is also lowering its demand for iron ore.

Despite this Chinese speculators continue to drive the iron ore price artificially higher. But without the demand to back up the surging prices, I expect iron ore will fall sharply in the coming months when the bubble bursts.

In the short term iron ore could well move beyond US$80 a tonne, or perhaps even as high as US$90 a tonne. But the higher it gets the riskier it becomes.

So whilst it may be tempting to buy shares in Atlas Iron Limited (ASX: AGO), BC Iron Limited (ASX: BCI), and Rio Tinto Limited (ASX: RIO) on the back of these rising prices, I feel investors would be better off avoiding them.

If the iron ore bubble does burst, then these shares will be in the firing line. For that reason I believe investors will be better served with investments in the healthcare or information technology sector.

Instead of risking your hard earned money on iron ore miners, I would suggest investors go where the smart money is going: these hot stocks. Each is tipped to shine in 2017 so don't miss out today.

Big, Fat, Dividends

This company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company's stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.

Discover out the name of this blue chip share along with 2 others in our new FREE report "The Motley Fool's Top 3 Blue Chips Stocks For 2017."

Click here to receive your copy.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.