Miners are SURGING as iron ore nears US$75 a tonne

Credit: iStock

Iron ore continued its meteoric rise overnight.

According to The Metal Bulletin, the resource soared another 4.4% to US$74.12 per tonne. That was off the back of a 3.9% gain during the previous session, marking its highest price since early in 2015.

Unbelievably, it has almost doubled in price since December last year when it bottomed out around US$38 a tonne.

Donald Trump’s US presidential election victory is a likely reason behind the iron ore surge over the past two days. Trump is supportive of further investment in infrastructure throughout the United States – including his proposal to build a wall separating the US from Mexico.

There is also a promise to rebuild roads and airports as well as bridges, hospitals and schools – all of which would require resources such as iron ore and coal.

Shares of producers of those commodities, including BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), have rallied since the election as a result of these expectations. The pair both rose 8.2% on Thursday and have gained another 2% and 1.4% so far today.

Fortescue Metals Group Limited (ASX: FMG) has risen another 2.3% today to follow yesterday’s ascent of more than 10%. South32 Ltd (ASX: S32) and Whitehaven Coal Ltd (ASX: WHC) also have benefited thus far.

There is certainly the potential for iron ore and other commodities to continue rising over the coming weeks and months. That could see shares of those businesses highlighted above climb even further as well, compounding the gains achieved by those lucky enough to have bought in at the bottom earlier this year.

However, there are risks to this strategy. The share prices of those businesses have already recorded strong gains and could easily be sold off again in the event the recent commodity price gains don’t hold. Should they fall, shares in the sector could be hammered.

Investors also need to consider that as commodity prices continue to rise more production will come online allowing other businesses to share in the profit pool. Heightened supply could well push those commodity prices lower again, creating the same issue businesses in the sector have endured in recent years.

Still, iron ore has enjoyed a remarkable rally, and those exposed to the resource have certainly benefited during that time.

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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.

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