The month of May continued the downward trend for iron ore, with the bulk commodity losing around 13% for the month to trade at a 20-month low of US$91.80 per tonne. The declines took the price losses for iron ore to over 30% this calendar year – serious bear market territory!
The effect on iron ore miners from the price fall has been severe. In almost lock-step, Fortescue Metals Group Limited (ASX: FMG) lost 13% in May too. Year to date, Fortescue is down around 23%, while Atlas Iron Limited (ASX: AGO) has sunk 40% and Mount Gibson Iron Limited (ASX: MGX) about 24%.
These falls are particularly painful considering the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up around 3% so far this year.
The first day of trade on the ASX for June has likely been met with a sigh of relief by resource sector investors with the iron ore price steadying at US$92 per tonne and iron ore mining stocks gaining some support too. The question for investors now is: have the horror falls finished and could the commodity be in for a period of consolidation?
On that score Andrew Forrest, the founder of Fortescue, had some comforting words. In an address to Australia in China's Century Conference in Melbourne last week the billionaire said he expected the price of iron ore to remain strong according to a report in The Australian newspaper.
Forrest also had a poignant warning for investors: "a bet against China is the only guarantee of loss I've seen for a long time."
Forrest's warning is worth remembering. It is exactly when fear is the greatest that the best opportunities present themselves to investors. With the iron ore price and miners down by around one-third the worst of the falls may be over; while it might be prudent to take a slow and steady approach, investors should be alert to the possibility that the coming months may represent a good opportunity to build an investment position in iron ore stocks.
