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Will the Fortescue, Rio and BHP share prices follow iron ore even lower?

ASX iron ore miners and the iron ore spot price have been hammered in the past month. During this period the BHP Group Ltd (ASX: BHP) share price is down more than 10% to $36.80, Rio Tinto Ltd (ASX: RIO) is down more than 17% to $85.70 and Fortescue Metals Group (ASX: FMG) is down more than 18% to $7.05.

Iron ore continues to face selling pressure with Chinese iron ore futures down 3.7% on Friday. Despite a positive open for miners last Friday, the slumping iron price and selling pressure had them all close in negative territory, and all have dropped again in morning trade today.

Is it over for iron ore miners?

While I believe the recent decline in iron ore miners has brought them to an oversold level, the iron ore spot price is telling us that they will go lower. For example, on Thursday, Chinese iron ore futures were down some 2 per cent despite a 1–4% lift in the BHP, Rio Tinto and Fortescue share price. The market is trying to bolster some buying strength, but the underlying commodity is showing no signs of support or consolidation.

Chinese trade data for July was announced on Thursday, with the numbers surprising many analysts and economists. China announced a trade surplus of US$45.06 billion vs. the US$42.65 billion that was predicted by Bloomberg consensus, year-on-year exports grew 3.3% vs. -1% and imports fell by -5.6% vs.the -9% predicted by Bloomberg analysts. However, iron ore inventory at Chinese ports has climbed to 121.05 million tonnes this week, up 5% from 1 ½ year lows in late June. The rise in inventory is a tell tale of the transition from a supply-tight market to somewhere closer to equilibrium.

The world’s largest iron ore producer, Vale SA, had recently received court approval to resume production at numerous mine sites following a deadly mine collapse earlier this year. This has seen a rise in seaborne supply from Brazil with reports that shipments have risen 17% in July to 34.3 million tonnes and should continue rising as production returns to form.

Foolish takeaway

I believe the market is trying to find support for Fortescue, Rio Tinto and BHP but the iron ore spot price is relentless in its freefall. This is a good learning lesson of how quickly the bullish iron ore market can turn bearish. It is too unpredictable to make a call whether or not iron ore will find any support or consolidation.

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Motley Fool contributor Lina Lim 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 Scott Phillips.

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