Iron ore rally unsustainable

Despite iron ore’s recent rally, which has seen the commodity climb to around US$122, experts are suggesting that those prices are unsustainable and will likely plummet in the September quarter.

The commodity climbed an impressive 7% last week and is currently trading around 10% higher than its levels in May, however, analysts at National Australia Bank have suggested that this is largely due to the restocking of inventories for Chinese companies.

Meanwhile, as demand decreases from the Chinese market, Australian companies are ramping up their supply of the resource. Mining heavyweights BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO), for instance, are both expanding to 290 million tonnes of production this year, according to The Australian Financial Review.

As demand decreases and supply increases, downwards pressure would be applied on the price of iron ore which would dramatically affect company revenues. On the other hand however, recent disruptions to supply in Brazil and mining bans in India will act in a positive way for our miners.

Foolish takeaway

Although there is still volatility facing the industry, BHP is reaching a much more attractive entry point. BHP’s operations are quite diversified, and therefore fluctuations in one market will not have such a dramatic effect as it could with other companies. For instance, Fortescue Metals Group (ASX: FMG), which is a pure iron ore player, would be more heavily affected should the resource fall in value, as experts have predicted will happen.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Ryan Newman does not have a financial interest in any of the mentioned companies.   

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now