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Why BHP Billiton Limited and the iron ore miners have been smashed today

It certainly hasn’t been a great start to the day for shareholders of Australia’s leading iron ore producers.

In morning trade the following shares have taken a sharp tumble:

  • The Atlas Iron Limited (ASX: AGO) share price is down 3% to 3.1 cents.
  • The BC Iron Limited (ASX: BCI) share price is down 2.5% to 20 cents.
  • The BHP Billiton Limited (ASX: BHP) share price is down 2.5% to $24.05.
  • The Fortescue Metals Group Limited (ASX: FMG) share price is down 5% to $6.28.
  • The Rio Tinto Limited (ASX: RIO) share price is down 2.5% to $60.06.

Why have the iron ore miners fallen?

According to Metal Bulletin the iron ore price dropped 4.3% to US$87.59 a tonne overnight, the biggest percentage drop in 2017.

This drop has led many to believe that the latest stockpile build from Chinese steel mills could be coming to an end, potentially putting the price of iron ore in a precarious position moving forward.

I wouldn’t be surprised to see the iron ore price tumble from here if demand from China weakens, especially with increased supply expected to hit the market this year.

Almost all investment banks have forecast for iron ore prices to weaken substantially in the second-half of 2017, which wouldn’t be good news for the miners listed above.

Although many of them will still have profitable operations even if there is a severe correction in prices, the bumper profits they have enjoyed which has driven share prices skywards could come to an end. This would undoubtedly put pressure on share prices like we have seen today.

It is for this reason that I think the prudent thing to do right now is to avoid the iron ore miners. When iron ore prices normalise then I think Fortescue Metals could be worth a good look at, but at this point in time I feel there is far more downside risk than upside potential.

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Motley Fool contributor James Mickleboro 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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