Fortescue Metals Group Limited rockets as the iron ore price pops


The price of iron ore jumped 6% to almost US$59 per tonne overnight, and our iron ore miners are enjoying the warm afterglow today, with Fortescue Metals Group Limited (ASX: FMG) up 4% to $4.34, Rio Tinto Limited (ASX: RIO) up 2% to $50.30, and BHP Billiton Limited (ASX: BHP) also up 2% to $20.37.

Proposed reasons behind the sharp rise include the Filipino win against China in a litigation case over the South China Sea, increased military/shipbuilding demand from the USA, and expectations of fresh stimulus in Japan following its elections on the weekend.

Accordingly, investors would be wise not to rely on today’s higher prices lasting, with Fortescue Metals Group in particular looking fully valued, even though the group has smashed market expectations with its turnaround in the past two years.

Prepare for continued volatility

Sharp swings in the value of iron ore have been the norm over the past two years and, although the market outlook is gloomy, prices have also not (yet?) hit the lows of US$30 per tonne that were forecast by many spectators.

With the value of the commodity depressed and likely to stay that way for some time, potential buyers need to have a sharp eye for value, and start looking closely at company mine life as well as any debt and funding situations.

BHP would previously have been my pick of the three big miners due to its diversification, but the ongoing Samarco litigation is an $8 billion-ish Sword of Damocles hanging over its head.

Elsewhere in the market, the value of oil rose overnight and Santos Ltd (ASX: STO), Oil Search Limited (ASX: OSH), and Woodside Petroleum Limited (ASX: WPL) are all enjoying an up day. However, a number of agencies are predicting prices to dip lower before supply and demand equalises.

Either way, volatility appears to be the order of the day for two of the major commodities.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor Sean O'Neill 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.