- Money Morning Australia

Why Now’s a Bad Time to Invest in Iron Ore Stocks


Written on 18 January 2012 by Kris Sayce

Why Now’s a Bad Time to Invest in Iron Ore Stocks

In 2010, Australia exported 402 million tonnes (mt) of iron ore.

That made it the world’s largest iron ore exporter… That 402 mt made up 40% of all world exports.

The Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts Australia will have exported 414 mt in 2011… and will export 459 mt this year.

And based on this week’s numbers from Fortescue Metals, BHP Billiton and Rio Tinto, there’s a chance ABARE has misjudged the true number.


Because as it says in today’s Age:

“BHP Billiton, the world’s biggest miner, expects to beat its full-year iron ore targets after first-half production rose by 23 per cent.”

It’s a great time to be an iron ore miner.

But is it a great time to invest in iron stocks?

The answer is “no”… And in a moment we’ll show you which commodity could be a more profitable investment for you.

Before we do… Slipstream Trader, Murray Dawes has just recorded and posted his latest free stock market update video on YouTube. You can watch it now by clicking this stock market update link

But for now, back to iron ore…

Iron Ore Price Heading Lower

So, what’s so bad about iron ore?

The following chart shows you:

monthly contract price for iron ore
Click here to enlarge
Source: Indexmundi.com

 


It’s the monthly contract price for iron ore. The price has peaked and is heading down.

Remember, until recently, the practice in the iron ore market was for yearly contracts. The big players would negotiate a price at the start of the year and that was it.

It was a good way to be sure of sales and the price. Trouble is, as iron ore prices went up, the big exporters could see how much they were missing out on due to fixed price contracts.

So it didn’t take long to convince the Chinese that monthly contracts were better. Only now, the iron ore price is falling. And that means less certainty about future revenues.

For instance, BHP announced a 23% increase in iron ore production from the previous year. That’s great news. Except the average price is 11% lower, and more importantly, the average price for the next quarter could be 30% less than the same time last year.

Investor reaction tells you there isn’t much to get excited about when it comes to BHP. The shares have done nothing today and haven’t moved much in the past few weeks.

Better Than Iron Ore

But, there was one clue in BHP’s production numbers worth paying close attention to. It’s this table:

BHP's production numbers
Click here to enlarge
Source: BHP Billiton

 


It’s a commodity we believe is better and has more potential to make Aussie investors gains than iron ore. We’re talking about natural gas.

Cheers.
Kris.

Related Articles

Special Report: Six Extraordinary Resource Investment Opportunities for 2012

How Global Oil Supplies Could Fall 40% Overnight

The Markets Rally Like It’s 2008



Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...
Share

Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the investment director for Australian Small-Cap Investigator, Diggers and Drillers and Revolutionary Tech Investor. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays. Read more about Publisher and Investment Director Kris Sayce.

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au


1 Comments For This Post

  1. Trading Coach Says:

    Thanks for this information. I will be sure to keep checking on the progress of the ore stocks.



FREE INVESTMENT REPORT: The Top 5 Oversold Blue-Chip Stocks in Australia


These five Aussie stocks all have something very powerful in common…and it could see them bounce up in the coming weeks and months. For all the details download this report right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

Diggers and Drillers

A 3-Point Plan to Re-Engage with the Aussie Mining Boom


This new video reveals a way for Aussie share investors like you to RE-ENGAGE with the next phase of the mining boom…while valuations are still dirt-cheap…


The plan centres round three specific stocks.


To find out what they are, click here.

Australian Small-Cap Investigator

The Australian wildcatter
exploring oil's 'final frontier'


The US Geological Survey says this area contains up to 71 billion barrels of oil.

Only a few explorers have secured licences to drill.

One of them is a daring little Aussie firm that begins drilling 'in early 2014'.

According to small-cap analysts Tim Dohrmann it's impossible to speculate just how high this one could go. Find out why here.

World War D

Couldn’t make it to our
‘War Summit’?


Don’t sweat it. Click here for the next best thing…


World War D was the most important meeting of minds of the decade so far. What came out of it will almost certainly force you to reshape your investment plan for the rest of the decade. There's no way to go back in time and get inside the Savoy Ballroom of the Grand Hyatt.

But you can do the next best thing…
to find out what it is, click here.

  • ^NDX3534.532+1.446 - +0.04%
  • ^FTSE6625.25+41.08 - +0.62%
  • ^AORD5444.800+32.200 - +0.59%
  • ^AXJO5454.200+33.900 - +0.63%
  • AUDUSD=X0.9331
  • USDJPY=X102.585

Graphic Ad 1 – Blue Chip Stocks Report


Revolutionary Tech Investor

This report is about TECH MOON-SHOTS


Four of them, to be precise.


It's an early-days project. But one biotech aiming for the cancer moon-shot is already up - get this - 497.14% since tipped.


For four more tech moon-shots, click here.

Gowdie Family Wealth

WARNING:
The worst mistake you can make when handing wealth on to your kids


This brand new investor briefing shows you what your family’s in for if you don’t take care to leave your wealth to them in exactly the right way.


And it shows you precisely how to prevent infighting, recklessness and misunderstanding over money.


Read it here.

The Money For Life Letter

Holden. Toyota. Qantas. BUST


Do you really expect the share market to boom in times like these? That's why Nick Hubble says the best thing you can do right now is invest for safety and income.


This brand new video shows you how you can get predictable, reliable and rock solid cash flow no matter what happens in the wider economy.


You could lock in up to $20,000 a year - and that's just the start. See how here.



Sound Money. Sound Investments. [bullish prediction]

Greg Canavan's first bullish prediction in four years


Greg Canavan
doesn't make forecasts like this often.


When he does, it's because he’s found something that could make you money for years to come.


Read more here.

Is the Australian Housing Boom Really Back?

The Denning Report

2014 Predicted


Dan Denning accurately forecast 2013's flight from
bonds to stocks, the commodities crash and the
Aussie dollar top…to the exact week


In this brand new forecast report, he shares his
three critical predictions for 2014…

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

Done properly, a retirement business can not only help fill a retiree’s time and replace their work [Read More...]

Free speech is no longer really a right at all. Governments, vested interests, and lobby groups are [Read More...]

Australian house prices are going to remain high. Perhaps finally, when the last baby boomer retires [Read More...]

Make sure that the changes you make to your financial plan are from a credible source. Otherwise the [Read More...]

It was day two of the World War D conference, and the final session was starting. We were closing th [Read More...]

The US dollar has value because the government levies $3 trillion in tax liabilities annually and ac [Read More...]

The best course of action is to focus on generating wealth and investments outside of the government [Read More...]

Since the US Federal Reserve’s relief efforts began, total world debt has gone up by $30 trillion, w [Read More...]

A one size fits all strategy or rollover to your own self managed super fund with the ability to tai [Read More...]

Services will boom according to the Reserve Bank of Australia. Sales assistants and tour guides are [Read More...]

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery