The monster iron ore rally has seen Fortescue shares gain 100% in six weeks

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Shares in Forescue Metals have doubled in six weeks as the price of iron ore has rallied.

Today, amid an explosive rally in mining stocks, the shares added more than 20% to hit $3 each, giving the company a market capitalisation of $9.34 billion.

Iron ore has risen 40% to $53.75 a tonne from a record low of $38.30 in December.

Fortescue shares hit a 12-month low of $1.44 on January 21 before hitting a high of $3.08 today. Here’s the chart:

But the shares are still far below the two year high of $6.22 in February 2014, and the pre-GFC peak of $13.15.

According to the latest annual report, Fortescue chairman Andrew Twiggy Forrest has 1,037,479,247 shares either directly or through his private company Minderoo Group. These shares are worth almost $3.2 billion at today’s closing price of $3.08. Six weeks ago they were worth half that.

Forrest, when the shares were at $13.15 in 2008, was Australia’s richest man.

Angus Nicholson, market analyst at IG, says iron ore skyrocketed 5% on Friday and the highly leveraged Fortescue Metals jumped with it.

“And yet much of the recent levity seen in the iron ore spot price seems to be driven by the rebuild in Chinese iron ore inventories,” he says.

“Chinese iron ore port inventories also look like they are peaking around the 95-96 million tonne level on the charts, and current inventory build looks increasingly like it is running out of steam.”

Steel prices in China have rising sharply, which has been improving margins for mills, bolstering confidence and lifting demand in the world’s most important iron ore market.

There’s likely an element of a short squeeze at play in the price action, too. This is a phenomenon where short-sellers, who are betting on a price fall and borrow stock on the market and before selling it on to other buyers, are forced to buy the stock back suddenly to “cover” their positions when the share price rises. This compounds the upwards movement in the price.

The latest ASIC data, from March 1, says more than 260 million Fortescue shares were declared in short positions.

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