One massive reason to avoid Australia’s iron ore miners

It was just over three weeks ago that iron ore experienced its biggest surge in more than two years.

Following the release of some upbeat Chinese trade data, the commodity skyrocketed 4.9% and was trading at US$84.17 per tonne. Investors in the sector certainly enjoyed the day with companies like Atlas Iron Limited (ASX: AGO) and BC Iron Limited (ASX: BCI) finishing the day trading almost 15% and 13% higher, respectively.

If ever there was unequivocal proof that a lot can happen in three weeks, it’s this…

Overnight, the commodity tumbled 2% to record its lowest price seen since September 2009 at just US$76.46 a tonne. That reflects a 9.2% drop since that memorable day last month.

And the miners are paying the price. Atlas Iron is down 5.6% today, while BC Iron is down 3.4%. Since that day, their shares have lost an incredible 40% and 46.8%, respectively.

If that doesn’t highlight just how dangerous Australia’s iron ore sector is right now, then nothing will. While some investors will no doubt try their luck in the hope of buying shares right before a big rebound, do yourself a massive favour and avoid the sector altogether.

Right now, I’d even be avoiding the bigger players, being BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), at least until the high level of volatility blanketing the sector begins to die down. While they’re better equipped for lower iron ore prices, I expect their shares will still feel the pain.

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

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