Bet against Rio Tinto, BHP Billiton as iron ore rally won’t last, says Liberum Capital – by Jasmine Ng (Australian Financial Review/Bloomberg – February 18, 2016)

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, which listed Rio Tinto Group and BHP Billiton 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, which is set to report production data this week. Seaborne supply will still increase by about 6 per cent 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 per cent content delivered to Qingdao advanced 1.1 per cent to $US46.78 a dry ton on Tuesday, the highest since November 16, according to Metal Bulletin. The commodity bottomed at $US38.30 in December, the lowest for daily prices dating back to May 2009.

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