What happened? According to Commsec Fortescue Metals Group Limited (ASX: FMG) was the top performing large cap stock on the ASX yesterday, surging 6.44% higher to a one-month high of $2.48, just a few cents away from a four-month high of $2.57 reached in early May.
The major reason for the rise? A surge in the iron ore price overnight to a recent high of over US$65 per tonne, 1.8% higher than the day before. There are a few questions being asked now; have I missed the easy gains? Will it return to $1.75? What does the future hold?
Well? There's no easy answer other than nobody knows. My biggest issue with the iron ore and oil market is that there appears to be significant external forces at work. For example, I can't comprehend how the oil price can fall 50% over the space of two months in what was previously considered a balanced global market.There must be some other factors in play that contributed to the decline in my opinion.
So, noting this, investors should remain cognisant that investing in companies like Fortescue, Atlas Iron Limited (ASX: AGO), BHP Billiton Limited (ASX: BHP), Mount Gibson Iron Limited (ASX: MGX), and Rio Tinto Limited (ASX: RIO) will remain a huge risk heading into the second half of 2015.
Now that the iron ore price has recovered from its low of $45 earlier this year, many Australian mining companies are now profitable. Here's the most recent breakeven price estimates published by UBS:
- Rio Tinto Limited @ US$33
- BHP Billiton Limited @US$34
- Arrium Ltd (ASX: ARI) @US$51
- Mount Gibson Iron Limited @US$54
- Fortescue Metals Group Limited @US$57
- BC Iron Limited (ASX: BCI) @US$60
- Atlas Iron Limited @ US$65
Is now the time to buy Fortescue Metals Group Limited?
While I'm a holder of shares in Fortescue metals I can't see myself adding to my holding any time soon. The share price has fallen significantly from a high of $6 relatively recently and could go much lower if the iron ore price heads south again.
The Motley Fool team hasn't found any good reasons to buy the stocks above as we prefer companies with great long-term growth potential, control over the price of their products, and preferably a steadily growing income stream.
