The shares of iron ore miners Fortescue Metals Group Limited (ASX: FMG), Atlas Iron Limited (ASX: AGO), and Rio Tinto Limited (ASX: RIO) could come under pressure this week following a sharp drop in the iron ore price on Friday.
According to Metal Bulletin the iron ore spot price fell 3.4% on Friday to a six-week low of US$76.25 a tonne.
Unfortunately with Chinese futures pointing to further declines on Monday, iron ore prices could finally be giving up their incredible gains.
Despite the Pilbara Ports Authority recently announcing a record monthly shipment of 43.94 million tonnes out of Port Hedland during December, I still feel current prices are unnaturally high and largely unsustainable.
A temporary lift in Chinese steel production and speculative commodities trading appear to be the reason for the spike in prices in the last few months. As supply increases and demand falls, it seems inevitable that there will soon be a correction in prices.
If this happens then I expect the shares of iron ore miners such as Fortescue and Atlas will be dragged down as well.
For this reason I would suggest investors look at taking profit on either of the two in order to reinvest elsewhere in the market.
When iron ore prices fall to reasonable levels again then I would be very interested in revisiting Fortescue. But until that happens I feel its shares are just a little too risky and best avoided for the time being.