Iron ore prices have fallen 35% since they peaked in May 2021 (at an all-time high), providing a headwind for share prices of the major miners - Fortescue Metals (FMG.AX), Rio Tino (RIO.AX) and Vale (VALE3.SA). In the short-term, the direction of the iron ore price is likely to dictate where the share prices of the iron ore majors head and there is likely to be significant hesitancy among investors in an environment where the iron ore price is falling.
The key debate for investors should not be around the direction of the iron price but the speed of mean reversion to the long-term price. Our base case remains that iron ore prices are likely to remain well above the market’s long-term estimates of $US65-75/t into 2022, settling in the $US100-120/t range. In our weekly view on Australian equities we explore:
• Why iron prices have fallen
• The outlook for iron ore prices
• What share prices imply
• Historical evidence to support our view
• Iron ore and the Wilsons Focus List
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John is a leading investment strategist with 20 years experience.