(This is an excerpt from an article I originally published on Seeking Alpha on January 7, 2013. Click here to read the entire piece.)
Back in September, one of the big stories was the plunge in iron ore prices to three-year lows around $87/ton. With prices down over 50% from the record high of $191/ton in February, 2011, it was natural for bears to loudly project further selling. Bears like Gordon Johnson from Axiom Capital recommended shorting Rio Tinto (RIO) with a $30 price target (the stock was double that last week) and set a year-end price target for iron ore at $50-70/ton. There was some additional bearish buzz when the spot price for China Domestic Steel Rebar 25 mm tumbled in November, but prices quickly recovered again in December. Now iron ore sits around $145/ton. Fortescue Metals Group, a heavily indebted and much maligned Australian iron ore company sharply rebounded from 3 1/2 year lows to close roughly flat for 2012. The swings in the iron ore space served up another lesson about over-chasing momentum. Yet, going forward, it IS time to get more cautious about the months ahead.
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Source: Reserve Bank of Australia
The rapid comeback in iron ore motivated Australia’s Bureau of Resources and Energy Economics (BREE) in mid-December to slightly increase its 2013 average price forecast from $101/ton to $106/ton. {snip}
Source: FreeStockCharts.com
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The future of iron ore is of course very important to the Australian economy. It is Australia’s biggest commodity export, more than double metallurgical coal, the next highest contributor. The drop in iron prices since 2011 has been a primary factor in driving the Australian dollar (FXA) steadily lower from record levels against the U.S. dollar… {snip}
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Having said all this, I have not become an iron ore bear; I just do not want to overstay the welcome in the short-term. Longer-term, I continue looking for timely buying opportunities. {snip}
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on January 7, 2013. Click here to read the entire piece.)
Full disclosure: short AUD/USD, long CLF put spread, long CNX calls