Australia's leading iron ore miners look likely to be given a boost again today after the iron ore spot price for the benchmark 62% fines index climbed higher overnight.
According to Metal Bulletin the spot price climbed 1% to $78.62 a tonne, putting it within touching distance of its two-year high.
This caused the UK-listed shares of BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) to lift overnight. I expect we will see the same on the ASX today, with Atlas Iron Limited (ASX: AGO) and Fortescue Metals Group Limited (ASX: FMG) likely to follow suit as well.
But I wouldn't suggest investors snap up shares today. Whilst the miners are enjoying prices they could only have dreamed about 12 months ago, I believe it is unlikely that this rally can continue for much longer.
Once speculative traders move onto something new and supply and demand dictates iron ore prices, I believe the price will fall below US$60 a tonne again.
I'm not alone in this view either with one investment bank in particular putting out a bearish note yesterday on bulk commodities. According to the AFR, analysts at Citi have described this year's iron ore rally as a "fluke". They expect iron ore to plunge to US$56 a tonne in 2017, around 29% lower than the current spot price.
Although the likes of Fortescue Metals will still run highly profitable operations even at this level, the bumper profits that investors have expected from high prices may not materialise.
My fear is that this could put significant selling pressure on its shares. In light of this I'll be sitting on the sidelines ready to pounce should Fortescue's shares drop to a more reasonable price.
