Shortage and oversupply are two recurring features of the commodity market. The former drives prices higher; the latter lower.
In recent months, iron ore certainly belonged to the former as Vale’s Vargem Grande Complex mine – a big supplier of the commodity – shut down. Beneficiaries of this included Rio, BHP, and Anglo.
But as Vale resumes operations of the mining complex, investors are now expecting iron ore’s supply-demand equation to return to equilibrium gradually. This removes one big bullish factor on iron ore miners. Results are immediate.
BHP, for example, is developing a medium-term top after a failed upside breakout at 2,050p (see below).
Rio Tinto’s reacted more sharply. Prices gapped down after hitting 5,000p. The stocks is threatening the 150-day exponential moving average (see Featured Chart).
Anglo American too had a failed uptrend reassertion at 2,300p, although short-term support is noted at 2,100p.
This means that the miners’ relentless rise over the past six months could be under threat. I expect choppier trends in this sector as some investors may decide to cash part of their chips.
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Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.