Joe Hockey may have inadvertently called the bottom of the iron ore market

Image: Stefan Postles/Getty.

“Be fearful when others are greedy, and greedy when others are fearful” is a tested saying in the markets.

Made famous by Warren Buffett, it suggests a good time to sell is when investors are overly exuberant and, when buying, when they’re at their most pessimistic.

It’s a great saying which, in light of price movements in recent days, could well be applied to iron ore.

For the vast majority of this year – in reality the past four years, give-or-take a few blips higher – the commodity has been in a relentless bear market. It’s been smashed. From the high of 2011 it’s fallen by over 70%.

In 2015 alone – from January to early April – the price fell $US24 a tonne, some 34%, in just over three months.

Watching this relentless downtrend, analyst forecasts became increasingly bearish. Slower Chinese demand along with a raft of new seaborne supply was going to send prices even lower.

$US50 a tonne, $US45 a tonne, $US40 a tonne. It seemed like each day that passed there was another ever-lower forecast coming.

Then, on April 13, markets received a bearish forecast to beat all other bearish forecasts. Joe Hockey, Australia’s Treasurer, admitted that Treasury were actively contemplating that the iron ore price could fall to as low as $US35 a tonne. – June 62% Fe CFR China Swap Futures

Markets reacted accordingly – share prices were hammered and rate cut expectations grew.

The spot price for 62% ore concentrate was $US47.53.

Then something remarkable happened. The price started to move higher, then rose and rose, culminating last week in two days where gains of 7% and 5.5% were recorded.

Now the price is sitting at $US57.81 a tonne, some 22% higher than when Hockey spoke on April 13.

While Hockey’s scenario may yet come to pass – we have seen countertrend corrections over the past four years and the supply surplus is widely tipped to grow in the years ahead – at least in the short term, perhaps Buffett’s saying needs a slight tweak when applied to iron ore: sell when the Treasurer is bullish and buy when he’s most bearish.

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