Shares in Fortescue Metals are falling despite another spectacular rally in iron ore prices.
Fortescue surged about 4% higher in early trade before reversing direction.
A short time ago, its shares were down 10% to $2.78. Yesterday they rose more than 20% to hit $3 each.
Iron ore is up 18.6% to $63.74 a tonne, the largest one-day increase since daily spot pricing was first introduced in May 2009.
Other miners are soaring on the price rally, with Atlas Iron up 45% to $0.032 and BC Iron 23% to $0.235.
Andreas Tjahja, senior dealer at easyMarkets, says profits are being taken after yesterday’s rise.
“Traders are doubtful whether the (iron ore) rally is sustainable and backed by improvement in Chinese demand,” says Tjahja.
“China’s economic indicators are still declining and the weekend’s congress resolution promised to cut overcapacity in steel, potentially curbing demand for iron ore.”
Fortescue also today announced a deal with Brazil’s Vale to create a blend of iron ore more attractive to the Chinese market, where a slowing economy and a glut in steel production has reduced demand.
The agreement also allows Vale to take a stake in the Australian pure play iron ore miner of between 5% and 15%. The deal is aimed at selling more ore and getting better than average prices for it.
There had been reports that Fortescue could be taken to task over continuous disclosure laws and that at least some of yesterday’s stellar share price rise was because the market had got wind of the Vale deal.
However, the company made a statement today: “Fortescue is aware of its continuous disclosure obligations to the ASX and the ongoing commitment to update the market, if and when, there are matters to disclose.