Iron Ore Price, page-2592

This is probably stating the obvious but when you are bottom picking, you are buying when the market is not putting a lot of value to your position. Each bear trend will always produce plenty of short term bull swings to catch the uninformed or greedy for those who thinks they got in at the base. FMG is no different and this is where the short term swing traders benefited at the expense of the buy and hold investors.

Recently FMG SP hit a resistance and rotated back down in the direction of the bear trend. I have not been following this sector but suspect it was in response to the IOP. No one knows the bottom or top until after the fact so the only control one has is to manage the position and mitigate the risk when it drops below your buy in price. The data out of China is mixed and more negative than positives. FMG ore body is I suspect is being optimised and could be reflected by the lower cost numbers they keep getting. There is nothing wrong with this in the short term but in the longer term, there is no free lunch. They will run out of good quality low cost ores to process and they better time it perfectly with the rise in IOP.

It has always been the debt issues although they have managed to push back the maturity a few more years in the future but eventually they have to come up with the debt capital. They are incurring higher premium of debt servicing as a way of buying time and waiting for China to eventually pick up. This is the risk investors should be buying with a view of the risks. The risk reward for cap gains is MUCH bigger than the BHP/RIO but so is the risk of ruin.

Look at Glencore and Nystar, super blue chip commodity heavyweights that have succumbed to a nonsustaining debt load. The IOP chart is showing there could be more pain on margins to come in the near future. As a buy and hold investment, I will look at RIO/BHP with their Tier 1 assets across the commodity sectors to get into position but my buy level is still quite far away. Good luck.