Iron Ore Rally Presents Chance to Short Rio, BHP, Liberum Says

Iron ore’s recent gains may prove to be unsustainable and there’s now a fresh opportunity for investors to bet on losses in miners’ shares, according to Liberum Capital Ltd., which listed Rio Tinto Group and BHP Billiton Ltd. among candidates for selling short.

“You could be forgiven for thinking iron ore is turning a corner,” analysts including Richard Knights and Ben Davis said in a note on Wednesday, citing gains in prices since December, plans by miners to cut supply growth and Chinese import data. “We don’t think so and see the recent sector rally as an opportunity to re-instate shorts in Rio, Anglo and BHP.”

Iron ore has rebounded in 2016 after three years of losses spurred by rising low-cost supply from the world’s largest miners including Rio, BHP and Brazil’s Vale SA, which is set to report production data this week. Seaborne supply will still increase by about 6 percent in 2016 and demand from China is weakening, according to Liberum.

“Whilst the expected rate of supply growth has moderated it remains significant over the next two years, particularly in the face of a declining demand environment,” the analysts said. Output may increase by about 80 million metric tons this year and 94 million tons in 2017, they estimated.

Ore with 62 percent content delivered to Qingdao advanced 1.1 percent to $46.78 a dry ton on Tuesday, the highest since Nov. 16, according to Metal Bulletin Ltd. The commodity bottomed at $38.30 in December, the lowest for daily prices dating back to May 2009.

Rio shares traded at 1,885 pence in London on Wednesday after dropping to a low of 1,557 pence on Jan. 20, while BHP was at 700.1 pence, up from 571.6 pence last month. Anglo American Plc, which bottomed at 215.55 pence in January, traded at 408.75 pence.

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