Buy iron ore, says some bloke

From CNBC:
“It is time to tactically get long iron ore swaps and Fortescue Metals,” Conor O’Malley of independent research firm View from the Peak said in a note.

While a weakening real estate market in China, which accounts for around two-thirds of global iron ore purchases, coupled with a flood of ore supply suggests further gloom for the market, O’Malley said this shouldn’t put investors off.

“Accepting all of the above, it is still time to buy iron ore exposure as we move into the Chinese winter,” he said.

But View from the Peak’s O’Malley is confident that the market’s dynamics will turnaround soon: “A 30 percent correction in any commodity market will produce a supply reaction. Iron ore is no different,” he said.

He pointed out that weak prices forced a number of Chinese iron ore miners offline, resulting in tighter domestic supply. This should put upward pressure on prices especially as the market heads into the harsh Northern winter which normally reduces supply, he said.

O’Malley said iron ore prices potentially have another $8 per tonne to fall, but noted upside potential of $17 from current levels, making the risk-ratio compelling.

Other analysts agreed that the price of iron ore shows signs of stabilizing around current levels of $93 per tonne.

“I actually feel that we are at a reasonable area. It’s at one of those points where it’s not cheap and it’s not expensive,” said Jonathan Barratt, chief investment officer at Sydney-based wealth management firm Ayers Alliance.

“About two months ago I would have said we could have gone a lot lower, but now because we’ve held these levels I’m more optimistic that she should be quite stable,” he added.

Sounds like they’ve all been reading too much MB. If iron ore can rally 17% from here I’ll take my hat off to it. Every rally this year has been badly abortive. But if it does then it will be solely owing to seasonality and restocking. Supply is not tight and is not going to get tight.

Right now I see this as an increasingly long shot, though I still think some kind of year-end price firmness should eventuate. But only if the falls in Chinese house prices at least slow!

I much surer outcome is the price falling further in the medium term.


  1. FMG has opened up 1.10% because those iron ore numbers you posted this morning screamed RALLY to me.