Motley Fool Australia

Iron ore plunges to 5-year low: Is this the bottom?

Tension is rising for high-cost iron ore miners around the world after the steelmaking ingredient dropped to its lowest price in five years. After having traded at US$135 a tonne at the beginning of the year, the commodity fell a further 1.2% overnight to just US$85.70.

While recent pressure has come from a slowdown in demand for housing in China, it is also coming from a tidal wave of new supplies from the world’s largest miners, including Australia’s own BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG). All of these companies operate low cost mines and are ramping up production levels to offset declining prices.

Although those three miners have the capacity to still turn a healthy profit at these prices, other miners around the world have been forced to close or suspend their operations. Fears are also rising over the future of certain Australian miners which operate at far higher costs than the big miners mentioned above. Should the iron ore price drop any lower, companies such as Atlas Iron Limited (ASX: AGO), BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX) will come under substantial pressure.

What should investors do?

Investors hoping to make some enormous profits on iron ore miners that have been heavily sold down may want to think again. While a recovery in the iron ore price would likely see shares rise in the near term, most analysts are bearish on the commodity. In fact, some have even suggested it could drop as low as US$75 per tonne, which would likely see shares fall much, much further.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

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

Related Articles…

Latest posts by Ryan Newman (see all)