Get out now, page-45

I was saying at $5 there's a lot of hubris on this board as people were boasting all the bad news was factored in etc. You've got to be realistic here, RIO and BHP are the only two who I think will survive the iron ore glut that's only just rearing its ugly head. An estimated 200-250mill tonnes of capacity will be added to the market in the next couple of years (equivalent to BHP at its current levels). You don't need an Economics degree to know what that could mean for iron ore prices.

Luckily I have one (with honours ). But something to keep in mind here, is that demand for commodities such as iron ore is 'inelastic'. Essentially that means, prices have the ability to rise explosively to the upside but also crater to the downside. Also another risk here is that operating costs are a bit misleading. If you've got debts to pay, you're not going to stop producing just because you might be underwater in terms of operating costs. You're likely to keep producing (albeit at a loss) and hope for better days. This is the risk in the iron ore market where Chinese production hasn't shut up shop like people were expecting.

You add these supply side dynamics to a sick demand side story - China's demand for iron ore will wane as investment peaks and it moves towards a more consumerist society (like other advanced economies). It's the perfect storm. If you're willing to brave it, I bid you good luck.