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Iron ore shows signs of weakness

Although the price of iron ore has remained significantly higher than what many analysts had expected, the commodity has begun to show some seasonal weakness in the last week, dropping 2.3% to US$131.30 per tonne.

With companies such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO), Fortescue Metals Group (ASX: FMG) and Arrium (ASX: ARI) all ramping up their supplies, it was anticipated that international demand for the commodity would fall, which analysts believed would push the price down to around US$100 a tonne. Instead, it has remained above US$130 per tonne since July with demand from Asia remaining strong.

However, as has happened in past years, prices begin to drop going into the fourth quarter as Chinese mills begin to slow down production heading into their winter period. Last September, the price fell from around US$120 per tonne to US$86.90 per tonne.

The effects this year are not expected to be as bad with Royal Bank of Canada forecasting the price to be well supported through the quarter. HSBC also believes that the commodity will trade at an average of US$115 per tonne throughout 2014.

Foolish takeaway

A fall in price for the commodity would likely cause shares of iron ore miners to drop as well, which could present more attractive buying opportunities for investors.

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

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