It?s been a rollercoaster ride for shareholders in Australia?s largest miners this year as conflicting views have emerged regarding the future of the industry whilst commodity prices have also remained volatile.
Earlier in the year, there were strong signs that suggested that the mining boom was well and truly a thing of the past. Demand for commodities from China continued to fall whilst, at the same time, the miners were ramping up their production ? so where was the value?
As time has passed, however, analysts and investors alike have been proven wrong, with commodity prices remaining resilient. Iron ore, for instance, has again defied predictions of a fall this quarter as analysts had expected demand to decrease as China went into their winter period. In fact, miners of the steelmaking ingredient drove the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) forward yesterday as it once again closed in on the US$140 per tonne price tag.
The commodity is currently priced at US$138.20 a tonne after having risen $US1.40 overnight. The question for investors however, is whether or not they should be exposing their portfolio to stocks from this sector.
It?s difficult not to ponder the possibility considering the enormous returns realised from the commodity?s miners in recent months. Fortescue Metals Group (ASX: FMG), for instance, has climbed an incredible 96% since June whilst Mount Gibson Iron (ASX: MGX) has returned 173% in the same timeframe. The gains haven?t stopped there with Atlas Iron (ASX: AGO) also jumping 74%.
Whilst the gains from the bigger miners, namely BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO), haven?t been quite as substantial due to their diversified operations and sheer size, they have still been impressive! BHP has returned 21% and Rio has jumped 33%.
Foolish takeaway
As the miners ramp up their production levels and the price tag on the commodity remains high, there are certainly positive signs for the future. However, there are also enormous risks still facing the sector and commodity prices will inevitably fall in the long run.
Whilst shares in the miners could continue to climb higher from today?s level, I believe there are more attractive long-term opportunities with a lower level of risk attached.
FMG Price at posting:
$5.69 Sentiment: Hold Disclosure: Held
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