Clearly the iron ore market has been volatile over the past year, as reflected in the stock prices of these 3 companies, and the 2012 slide in Chinese demand for iron. Iron ore prices fell from a high of $187 per metric ton in 2011, to a low of $99 in September 2012. However, so far in 2013, the commodity has seen a sharp rebound to the $154 level in February, and most recently traded around $139. On Mar. 18, 2013 Vale SA (ADR) (NYSE:VALE) chief executive Murilo Ferreira said China’s demand for iron ore is improving and he expects prices to be between $110 and $145 per dry metric ton this year.
What to do now?
Cliffs Natural Resources Inc (NYSE:CLF)’ stock price is down over 75% from where it traded just 2 years ago in 2011. The stock has approximately 20% of its shares sold short, and management believes their Bloom Lake Mine in Ontario, Canada will provide the needed capacity for future growth when the iron ore market rebounds. These facts seem to suggest the stock price may have limited downside from here, and much of the market’s concern regarding iron ore oversupply has already been discounted in Cliff’s current price.
When a turnaround in Asian iron ore demand actually materializes, earnings momentum returns to this stock, and the shorts run for cover, Cliffs’ stock price can appreciate significantly. Additionally, at present levels the stock has a dividend yield of 3.3% to compensate for awaiting a demand side rebound.
Now may be the time to take the plunge on Cliffs Natural Resources Inc (NYSE:CLF), with an initial position, when the market is providing this opportunity.
Ray Urci has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.