The Lordlings of Iron Ore and how we profited from their folly – Final Chapter

By | October 3, 2015

Every good thing comes to an end and such is the case with the shorts on the iron ore miners and their partner in crime–Caterpillar (which I wrote up on SA). I wrote a 4-part post (link to part IV) about this short idea and now it is time to sum things up:

 

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Not surprisingly, the better-managed Rio Tinto declined the least while the ones that are very badly ran made the most profitable shorts with Vale taking the lead. This is no wonder given the fact that good management deserves a premium valuation in both good and bad times.

While I think that the worst is still ahead for these companies, most of the juice of these shorts has been squeezed and now their troubles, which were obvious also two or three years ago, are all over the headlines and grab a lot of attention from the media and the sector’s analysts. So, I no longer feel like a contrarian here and therefore, it will be more difficult to make money from this point on than it used to be when Wall Street analysts and the media were so optimistic about China’s iron-ore consumption and forgot to look at the supply side of the equation.

 

3 thoughts on “The Lordlings of Iron Ore and how we profited from their folly – Final Chapter

  1. Amik

    thanks a lot for the original idea and great analysis
    The Put options i used were very profitable. 100s %

    Reply
  2. Yoav

    You don’t think there is room for further investment? why? Do you think the cycle is over?

    Reply
    1. Yaniv Uliel Post author

      Yoav, it is very hard to call the bottom so I won’t try to do that. However, I don’t think that the cycle is over but I believe that the easy money here has been made. If you look at the industry’s cost curve you can see that when prices stay around $50 for some time, it forces a lot of capacity out of the market. That might create a rebound, even if temporary, in the price of iron ore. In addition, the negative view on iron ore, which used to be a contrarian view has now become more mainstream and it is hard to make money by thinking like the mainstream. I may go short again if prices rebound and the market becomes optimistic again…

      Reply

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