Rio, BHPB, and the price of iron ore
I would be the first to agree that I don't really understand how the stock market works. I think I know how it is probably supposed to work, more or less, but there is obviously much more going on under the covers that us regular folk just don't fathom.
For example I don't understand how the share prices of Rio Tinto and BHP Billiton (BHPB) have not fallen more than they have. They have been falling, as you can see by the 12 month charts I have included for RIO, BHPB, and FMG.
The price of iron ore has fallen from $180 down to $68 per tonne. That's a fall of over 60 percent. Yet the share price of Rio Tinto has only dropped about $5 or 7.5 percent and BHP Billiton stock has only fallen by about $6.50 or 17 percent.
Fortescue Metals (FMG) have been hit a bit harder losing around $2.25 or 42.5 percent. This is due to the view that the cost to FMG of getting the iron ore out of the ground and on the ships is around the $70 per tonne mark, whereas at around $50 per tonne Rio and BHP have more room to move.
But even so, all things considered such as the falling price of crude and coal as well, you would think that Rio and BHPB should be in for a further correction of 10 to 15 percent in the short-term—assuming the price of iron ore doesn't suddenly go back up to $100 per tonne. I realise they have massive reserves of iron ore but what good is that if you can't sell it at the price you need to?
Barry.