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Iron Ore Prices Make a Strong Comeback in April

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Iron ore prices rebound

Benchmark iron ore prices made a huge comeback this month. Iron ore was trading at $57 per ton on April 24 compared to the April 2 decade low of $48 a ton.

Companies like BHP Billiton (BLT), Rio Tinto (RIO), Fortescue Metals Group (FSUGY), Vale SA (VALE), and Cliffs Natural Resources (CLF) saw iron ore prices increase by roughly 17% in April. We’ll say more about this later in the series.

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Oversupply situation continues

Currently, the main problem with the iron ore sector is the oversupply issue. Iron ore miners like BHP Billiton, Rio Tinto, and Vale created this situation.

An unprecedented fall in iron ore prices resulted from oversupply and weak demand from China (FXI), which is responsible for two thirds of overall seaborne demand. Inventories in China fell quite low recently.

Also, BHP’s 1Q15 production report showed that the company has decided to go slowly on its planned capacity expansion of 290 million tons per annum. This has helped to improve sentiment in the oversupplied iron ore market.

However, investors need to see the bigger picture here. Iron ore prices reached historic lows, so this current rebound might just be a correction rather than a sustained uptrend.

BHP Billiton, Rio Tinto, and Vale form 31.4% of the iShares MSCI Global Metals & Mining Producers ETF (PICK). Some of these companies are also part of the SPDR S&P Metals and Mining ETF (XME).

Series overview

In this series, we’ll discuss the following indicators in order to understand iron ore price trends:

  • China’s iron ore imports and steel production
  • iron ore inventories
  • China’s manufacturing purchasing managers’ index (or PMI)
  • China’s real estate and credit market to help

The industry publishes most of these indicators each month, but other indicators appear on a weekly or quarterly basis. Investors should look at these indicators collectively to gain clues about the future direction of iron ore prices.

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