Iron Ore Current Pressure Weighs on Vale Stock Price

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Equity Bottom-Up

In this post, I estimate that the global cost curve for iron ore has shifted down materially in the past year thanks to lower oil prices, which has effectively doubled the break-even global production to around 800 million metric tonnes.&nbsp; Nonetheless,&nbsp;the competitive effect of lower iron ore prices on low cost producers is beneficial because marginal producers are being squeezed out of the market.Based on a long run data set, I show that RIO has delivered handsome returns to shareholders when iron ore and metals prices have stagnated for extended periods, and attribute this to less scope for management hubris and renewed focus&nbsp;on returning capital to shareholders.&nbsp; Thus, I recommend that investors with an horizon of more than 6 months, use ongoing weakness in iron ore prices to build an active position in RIO.&nbsp;

In this post, I estimate that the global cost curve for iron ore has shifted down materially in the past year thanks to lower oil prices, which has effectively doubled the break-even global production to around 800 million metric tonnes.&nbsp; Nonetheless,&nbsp;the competitive effect of lower iron ore prices on low cost producers is beneficial because marginal producers are being squeezed out of the market.Based on a long run data set, I show that RIO has delivered handsome returns to shareholders when iron ore and metals prices have stagnated for extended periods, and attribute this to less scope for management hubris and renewed focus&nbsp;on returning capital to shareholders.&nbsp; Thus, I recommend that investors with an horizon of more than 6 months, use ongoing weakness in iron ore prices to build an active position in RIO.&nbsp;

Iron ore - Don't throw the baby out with the bath water

Rio Tinto Ltd

Iron ore - Don't throw the baby out with the bath water