Champion Iron Drops 3.6% on Iron Ore Head Fake

Champion Iron Ltd [ASX:CIA] dropped 3.6% this morning to 94 cents per share.

What happened to the CIA share price?

If you’re a basketball fan, you’ll know what a head fake is. It’s when you fake to shoot the ball so you can get your defender out of position. Well, the price of iron ore has ‘head faked’ the market.

According to the Australian Financial Review:

Iron ore’s attempt at a rebound lasted just a few short hours as investor concern over robust supplies, including near-record port stockpiles, and speculation some traders in China were rushing to offload holdings combined to snuff out the brief gain.

Shanghai Cifco Futures Co said in a note on Monday signs are now emerging that traders are dumping their holdings, with some transactions done at low prices.

“Iron ore currently holds the title of being the weakest commodity product,” Xu Huimin, an analyst at Huatai Futures Co in Shanghai, said by email on Monday. “Traders absolutely don’t wish to hold it. I guess pressure from the arrivals of future shipments is too great.”

What now for Champion Iron Ltd?

While iron ore is weak now, it might not be in the future. Unless we stop building infrastructure or develop something better and more cost-effective than steel, the world’s going to need iron ore.

But if you do choose to throw your lot in with an iron ore miner, be aware that your position will likely swing widely. Some days you might be up, other days you could be down. The key is to hold on for the long term — that is, if you think demand for iron ore will be stable and increase into the future.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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