Iron ore miners are ignoring the first law of holes: When you find yourself in one, stop digging. Industry majors continue to increase production despite weak pricing. Image source: Peter Craven.

Is the iron ore rally over already? After a grueling year that saw prices slip to a low of $38 per ton in December, iron ore rallied last Monday, spiking 19% higher to hit $63.75 per ton, the greatest one-day rally in history, and miners like BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), and Vale (NYSE:VALE) have all enjoyed a run-up in response.

Since hitting a low of $18.46 in January, shares of BHP have jumped 60%, trading just under $30 each, while Rio gained as much as 47% from its January low. Vale went on a tear, with its stock more than doubling in value, rising from its nadir of $2.24 that it hit in late January to almost $5 a stub on Monday.

Yet by week's end, the rally in pricing for both iron ore and mining stocks seems to have fizzled. Iron ore trended back toward $50 per ton and the miners gave up a chunk of their gains. BHP settled to a 43% improvement while Rio is now up 31% from its low. Vale remains some 73% higher.

However, if the iron ore pricing rally was that tenuous that it couldn't hold on for more than a week, investors may be right to be concerned that the miners will revisit their lows too.

A short-term convergence
The surge in pricing was driven by Chinese regulators who signaled they were willing to spend their country's economy out of the doldrums by loosening monetary policy to support growth. They've committed to targeting economic growth of 6.5% this year, but the fundamentals of the mining industry may not be there to underpin any sustained expansion. Even BHP Billiton admits the market for steel and pig iron production this year are at best "subdued."

While the miner also feels there is a better long-term outlook because other sectors of the Chinese economy are more robust than construction, Australian ministers cautioned against boasting about how much iron ore the miners can dump on the market, and advocated that producers be more "circumspect" in their approach.

It speaks volumes
Despite the low pricing environment, BHP has indicated it still intends to push production higher, hitting 270 million tons in Western Australia this fiscal year and eventually rising to as much as 290 million tons. Western Australia accounts for about 37% of global iron ore production and half of international seaborne iron-ore trade, of which China consumes about two-thirds.

By keeping production high, the miner actually lowers its costs, and BHP has been on a cost-cutting drive, slashing jobs and cutting its dividend. As a result, it has an ingrained incentive to keep pushing production ever skyward.

Yet there are risks. Investigators looking into the deadly Samarco mine collapse in Brazil that killed 19 people say it was caused at least in part by the desire by BHP Billiton and Vale to ramp up production to offset falling prices.

Vale has also been pushing production higher around the world, and last month noted it hit a record of 346 million tonnes of iron ore in 2015 -- this even as it realized prices that were 42% below the year-ago period. Rio Tinto noted its higher production of iron ore volumes improved its earnings by $132 million last year.

With a mind-set like that, and industry and macroeconomic fundamentals remaining weak, there is little chance iron ore prices will remain elevated, and the rally in the miners' stock prices are poised to follow them lower. Investors would do well to avoid trying to catch the volatility ride and instead wait for a more stable environment to emerge.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.