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As Iron Ore Prices Trend Lower, How Are Miners Doing?

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Apr. 6 2017, Published 2:03 p.m. ET

Iron ore prices trending lower in 2017

Iron ore prices finished 2016 with a surprise 80% increase, as most of the market participants were calling for a downside. The trend continued as 2017 began, with iron ore prices pushing close to $95 per ton in February, which was a 30-month high.

However, iron ore prices have been trending lower since then and ended 1Q17 closer to $80 per ton. The inventories at Chinese ports have been increasing as doubts persist over the slowing Chinese government stimulus, leading to weaker demand. Along with robust supplies, these factors have begun to take a toll on iron ore prices.

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Iron ore miners

Iron ore miners had an unexpectedly good year in 2016, and 2017 is turning out to be better than many market participants had expected. With stronger iron ore prices, iron ore miners (XME) are reaching new highs.

Vale SA (VALE) is leading miners with gain of 24.7% in 1Q17. Rio Tinto (RIO) and BHP Billiton (BHP) gained modestly in comparison at 5.8% and 1.5%, respectively.

Cliffs Natural Resources (CLF), which outperformed its peers handsomely with an annual rise of 404% in 2016, lost 2.4% in 1Q17. Its APIO (Asia-Pacific Iron Ore) division is directly exposed to seaborne iron ore prices. Cliffs Natural Resources’s pricing for long-term contracts in its US (SPY) (SPX) division is also tied to benchmark iron ore prices.

Series overview

In this series, we’ll review iron ore miners’ Wall Street performance in the first quarter of 2017 and see how the rest of the year could look for them. We’ll explore the major developments that took place in the iron ore sector during the quarter.

In the next few parts, we’ll discuss the individual miners’ performances and the reasons behind them. We’ll wrap up the series with a discussion on analyst rating changes and valuations.

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