Iron ore storms higher: Is it time to buy Fortescue Metals Group Limited shares?

The Fortescue Metals Group Limited (ASX: FMG) share price will be one to watch on Tuesday after the iron ore price continued to rally higher.

According to Metal Bulletin, the benchmark 62% fines increased 1.6% to US$66.81 a tonne overnight.

This means that the steelmaking ingredient is trading at the highest level since the start of May.

Are there more gains to come?

With Chinese futures up approximately 5%, it would appear as though iron ore could be destined to push even higher during trade today.

Strong data out of China yesterday appears to have been the catalyst for this increase. According to Bloomberg, Chinese second-quarter GDP grew 6.9%, compared to the market’s expectation of 6.8%.

Furthermore, crude steel output reached 73.2 million metric tonnes in June, an increase of 5.7% from the prior corresponding period.

Traders appear to have interpreted this as a sign that the insatiable appetite for iron ore is here to stay.

Which would be great news for Fortescue and fellow iron ore miners Atlas Iron Limited (ASX: AGO) and Rio Tinto Limited (ASX: RIO).

Should you invest?

As I’ve said a number of times before, if you’re bullish on iron ore then Fortescue could be a great resources investment at the current share price.

But as I’m bearish on the base metal in the long-term, I won’t be in a rush to invest. With steel inventories at reasonably high levels and iron ore supply expected to increase strongly, I believe it is unlikely that prices will remain at the current levels in the long-term.

If iron ore prices do come crashing back down to earth again, then the shares of Fortescue, Atlas, and Rio Tinto could all be dragged down with them.

In light of this, I believe investors will find a better risk/reward on offer with these quality growth stocks.

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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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