Could the iron ore price hit US$100 in 2018?

Those who are convinced that the price of iron ore is facing a sharp pullback in the near term will have their confidence tested.

The amount of the steel making ingredient shipped from Port Hedland hit a record in December with 46.2 million tonnes being loaded onto ships for export at Australia’s largest iron ore port.

This is 12% more than in November and eclipses the previous record of 44.1 million tonnes, according to a report in Fairfax Media Limited (ASX: FXJ).

This milestone is even more significant because it flies in the face of predictions of a slowdown in China’s iron ore consumption as many industries in that country, including steel manufacturing, shut down or cut production during winter.

If demand is strong despite the seasonal weakness, it could well mean that any pullback over the next few months might be relatively shallow and short-lived.

That is great news for our iron ore producers like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO). As I wrote last week, the sector is poised for a significant upgrade in valuation if spot prices remain firm this year.

It isn’t only the two mining giants that will benefit. Other smaller players like Atlas Iron Limited (ASX: AGO), Mineral Resources Limited (ASX: MIN) and BCI Minerals Ltd (ASX: BCI) could also produce a pleasing profit result next month.

But if you are tempted to buy Fortescue Metals Group Limited (ASX: FMG) for the same reason, you might want to hold off until it hands in its quarterly production report at the end of this month as there is some uncertainty over its contribution to the December record export volume.

The miner’s October and November export volumes were weak and that could be due to the pollution controls imposed by the Chinese government, which has driven the market towards higher grade and less polluting ore.

Fortescue’s ore is of a lower quality and investors will be keen to see if this dip is temporary.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. 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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