Has the iron ore price bottomed out?

Fortescue Metals Group Limited’s (ASX:FMG) CEO believes iron ore prices have stabilised.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It’s been a shocking run for iron ore investors over the last few years, but one industry insider believes that the worst may finally be over.

According to The Australian Financial Review, Nev Power, CEO of industry giant Fortescue Metals Group Limited (ASX: FMG), believes that the iron ore price has finally stabilised. It hit a low of around US$38 a tonne late last year – down from about US$185 a tonne in 2011 – but has jumped above US$50 in the time since.

One tonne is currently fetching US$54.57, after slipping 0.3% overnight, based on data from The Metal Bulletin.

The AFR quoted Power as saying: “If you look at where it [the price] is today compared to the cost of production on the global supply curve, I think it’s probably somewhere near the bottom and should be able to stabilise from here.”

Indeed, much of that belief relies on China’s ability to deliver on its growth prospects over the coming years. One factor that could get in the way, however, is that China is also trying to transition away from an economy driven predominantly by industrial growth towards one that is driven by consumption and services. That would mean less demand growth for resources such as iron ore and coal.

Meanwhile, others are also not quite so confident in China’s ability to grow at such an ambitious rate of 6.5% annually. Power’s beliefs also contrast to those expressed by executives at fellow iron ore miner BHP Billiton Limited (ASX: BHP) who expect the challenging conditions to continue for the foreseeable future.

After all, there is still a huge amount of supply coming into the market, which is simply outweighing demand growth and thus acting as a downward force on the iron ore price. It is this (combined with its enormous debt load) that finally pushed Arrium Ltd (ASX: ARI) into voluntary administration on Thursday, while others in the industry are also at threat if conditions don’t improve (or worse, if Power is proven wrong and conditions do decline from here).

One way or another, it’s impossible to tell at this point where the iron ore price will go from here. It is a risky bet, however, and one that investors with a low tolerance for risk may want to avoid.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »