This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Will Iron Ore Stocks Sink Like a Stone?

By Helen Burnett-Nichols

NEW YORK (Minyanville) - Concerns over demand from China have weighed on iron ore prices this month, and the world's largest producers of the raw material ended May in the red. But some say sentiment could improve in the second half of this year. It's not clear if sentiment alone, however, can prop up the sector.

Laura Brooks, senior consultant, steel raw materials at CRU Group in London says weaker Chinese underlying demand, coupled with plentiful supply and ample stocks drove the iron ore market downward in May, as falling steel prices in China weighed heavily on sentiment in the iron ore market.

Iron ore prices fell from September 2011 levels of around $180 per ton to $138 by the end of the fourth quarter, according to data from The Steel Index and Bloomberg, on weaker demand. Although prices climbed back to $148 near the end of April, May has been a different story, with prices falling to $130 earlier this month.

"Iron ore prices thus fell back after reaching modest highs for the year in April, although they are now finding some stability," Brooks says.

Following substantial share price declines in 2011, year-to-date, Vale (VALE), the world's largest producer of iron ore, is down 14%, while BHP Billiton (BHP) has fallen 12.8%, and Rio Tinto (RIO) has moved 10.8% lower (to May 30).

More from Minyanville
Three Uranium Stocks Are Up in 2012 After a Hard Fall Post-Fukushima
Why LinkedIn and Twitter Have Better Prospects than Facebook
What Else Could Go Wrong? Well, Since You Asked...

"Iron ore stocks have been retreating as general consensus is that China growth has been slowing and considerable production is coming down the pipeline," according to an April research note on the iron ore sector by the analyst team at Dundee Capital Markets.

As reported by The Australian, Wood Mackenzie principal iron ore analyst Paul Gray noted earlier this month that Chinese buyers of iron ore "appear to be holding back on purchases amid increasing global economic uncertainty" and are also deferring shipments, leading to an oversupply in seaborne markets.

Long-term, Dundee analysts say they believe China's "breakneck pace of growth" is unsustainable.

"It has already showed signs of diminishing with Q1/12 GDP growth falling to 8.1%, compared to 8.9% the prior quarter. Combined with potential oversupply we may see serious downward pressure on iron ore prices. China consumes more than 60% of the 1 billion ton annual seaborne iron ore trade, and therefore remains the largest influence on prices," says Dundee.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,051.73 -48.45 -0.28%
S&P 500 1,973.63 -4.59 -0.23%
NASDAQ 4,424.7040 -7.4420 -0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs