Iron ore surges 4.9%: Here’s what you need to know

The spot iron ore price experienced its biggest surge in more than two years overnight after Chinese trade data eased concerns that the world’s second largest economy was slowing down. Iron ore jumped 4.9% to US$84.17 a tonne, taking its total gain since Friday to 6.7%.

Data released by the National Bureau of Statistics showed that exports from the nation had jumped 15.3% year over year while imports rose an impressive 7%, compared to the 2% fall that most analysts had predicted.

This of course comes as great news for Aussie miners whose shares have been punished as investors grew increasingly nervous about just how low the iron ore price would fall. Atlas Iron Limited (ASX: AGO) and Mount Gibson Iron Limited (ASX: MGX) have jumped 4.6% and 3.8% respectively, while BC Iron Limited (ASX: BCI) has climbed even further with its shares up 8.5%.

The big miners haven’t missed out on the renewed optimism either. BHP Billiton Limited (ASX: BHP) climbed 1.4% while Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) rallied 2.4% and 6.4% respectively.

Before investors get too carried away however, it is important to note that this could simply be a temporary relief, as opposed to the start of a strong recovery. It is very possible that Chinese mills have simply taken advantage of the recent discounted prices to grow their stockpiles. As much as I hate to be a party pooper, that could mean the commodity will again continue its decline in the near future.

As such, I would still suggest that the smaller miners should be avoided completely. While they could deliver some nice returns over the coming days or weeks (as highlighted by today’s rallies), they are still not presenting as a reliable or safe long-term bet. BHP Billiton, on the other hand, is starting to look much more attractive. While I still think investors who remain patient could be offered an even better buying price in the coming weeks or months, I do like the company’s long-term potential.

In the meantime, there are other great ways of making money from Australia’s resources sector. And I’ll give you a hint, it’s not from iron ore…

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

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