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Where will iron ore go from here?

Analysts have reaffirmed their views that the recent surge in iron ore prices is unsustainable, with many expecting the resource to fall significantly in value in the September quarter.

Analysts at RBC Capital Markets have suggested that the recent gains have been the result of an increase in Chinese credit availability, whilst analysts at National Australia Bank have stood by their conviction that the surge has been onset by Chinese companies restocking their inventories, despite weak macroeconomic data. James Glenn from NAB stated that “production in China continues to be robust for the year to date, but this has been largely done using existing stocks of iron ore, which have run down and so they are replenishing.”

Since the beginning of July, the commodity has climbed 7.1% but still sits significantly below its value at the beginning of the year. As a result of the climb, shareholders of iron ore miners such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have received some much needed relief. Last week alone, these companies saw gains of 5.4%, 3.9% and 5.6% respectively, however, it is likely that the market will reverse these gains upon the first sign of a fall in value for the commodity.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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