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Iron ore is now in a bear market

bear beats bull down chart

It’s official. Iron ore has once again entered into a bear market.

On Friday the benchmark 62% fines fell by a further 3.8% to US$63.56 a tonne, according to Metal Bulletin.

This left the base metal trading at its lowest point since early July and is over 20% lower than the August 21 high of US$79.93 a tonne.

It wasn’t just the 62% fines sinking lower. The lower grade 58% fines which Fortescue Metals Group Limited (ASX: FMG) produces was down 2.2% to US$38.69 a tonne.

Weak steel prices and concerns over the a potential forced cut to steel production in China have weighed heavily on the base metal in the last couple of weeks and show no signs of abating at this point.

This could be bad news for shareholders of Fortescue, Rio Tinto Limited (ASX: RIO), Atlas Iron Limited (ASX: AGO), and Mount Gibson Iron Limited (ASX: MGX). The bumper profits that the majority of these companies have enjoyed in the last 18 months could come to an end if iron ore prices continue to slide lower.

Should you avoid the industry?

Because iron ore has a habit of surprising and rebounding higher I can understand why some traders would be tempted to invest at this stage.

But I don’t believe it is worth the risk. Not when there are far more compelling investment options available elsewhere in the sector.

Instead of iron ore producers, companies like Santos Ltd (ASX: STO) or the lithium miners could be great options for investors looking to gain exposure to the resources sector.

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Motley Fool contributor James Mickleboro has no position in any of the 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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