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Here’s why the iron ore sector is climbing today

Australia’s iron ore miners are breathing a sigh of relief this morning after the red metal enjoyed its biggest one-day rise since March overnight. Although there are still growing signs of weakness in the Chinese economy, firmer spot steel prices from China helped the commodity to rise 3.9% to be trading at US$85.20 a tonne.

While BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) both benefited from the rise, with their shares up 0.8% and 1.2% respectively, it was the smaller or higher-cost miners who showed the strongest reaction. Fortescue Metals Group Limited (ASX: FMG), for instance has risen 2.9%, while Atlas Iron Limited (ASX: AGO) and BC Iron Limited (ASX: BCI) have both jumped 3.5% and 4.4%.

Those strong surges suggest that investors might be buying up in the hope of a recovery. With the commodity down 37% since the beginning of the year, many in the market believe that the sell-off has been overdone and that the stocks are now presenting as excellent value. Fortescue, for instance, is trading 34% below its 52-week high, while Atlas Iron and BC Iron are 52% and 61% off their highs, respectively.

While buying iron ore miners could be a way to make some quick profits (provided that the iron ore price does continue to strengthen), I am not so bullish on the commodity for the long term. In fact, I’d be more inclined to agree with the numerous analysts who are suggesting it will fall to just US$75 a tonne in the coming months. The fact is, while Chinese growth rates are slowing and global supplies are rising, there really is only one way the commodity can go over time.

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

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