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Why Steel and Iron Ore Stocks Popped Today

By Travis Hoium - Apr 12, 2016 at 5:30PM

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A jump in prices could be a sign of improvement for steel and iron ore companies. But will it last?

Image source: Pixabay.

What: Shares of mineral and metals companies jumped today as rising prices gave renewed optimism to investors. The stocks of Cliffs Natural Resources Inc. (CLF 5.60%), Teck Resources Ltd. (TECK 3.52%), Vale SA (VALE 2.93%), and Companhia Siderurgica Nacional (SID 5.18%) all rose more than 10% in Tuesday trading on the market's bullish sentiment.

So what: Iron ore prices surged to almost $60 per metric ton, the highest price we've seen in a month as China's steel mills began purchasing raw materials again. This was the continuation of a generally bullish trend in iron ore, which has risen 36% in 2016, according to Metal Bulletin Ltd.  

Steel rebar prices in China have also risen today and have jumped 31% so far this year. There are mixed feelings about whether China's economy is starting to rebound or whether we're in for a tough year, but for today, those expecting good times ahead are winning. But as we've seen in the past few years, there can be a lot of volatility, so even if you're very bullish on steel demand in general, volatility will likely be high.

The third factor that could be driving metals and minerals stocks higher is the political changes that may be taking place in Brazil. President Dilma Rousseff moved closer to being impeached today, and protests in the country continue to put pressure on Congress. Long term, the hope is that an impeachment may lead to a more stable economy, but if there's a political change, there could be short-term economic unrest as well.  

Now what: As you can see below, volatility has been a trend for all four of these companies over the past year, so a more than 10% move today is almost business as usual. And in the short term, it's encouraging to see prices rising, especially in China.

CLF Chart

CLF data by YCharts.

What is more important long term is that these companies can start to make money on a consistent basis again, and that leaves more questions than answers for investors.

As earnings start to roll out over the next month, keep an eye on the cost structure companies are reporting and how they see demand going forward. If the trends are positive, today's enthusiasm could last. But until we start seeing hard numbers, I'm going to sit out this metals-driven move.

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Stocks Mentioned

Cliffs Natural Resources Inc. Stock Quote
Cliffs Natural Resources Inc.
CLF
$23.01 (5.60%) $1.22
Vale S.A. Stock Quote
Vale S.A.
VALE
$17.21 (2.93%) $0.49
Teck Resources Limited Stock Quote
Teck Resources Limited
TECK
$41.71 (3.52%) $1.42
Companhia Siderúrgica Nacional Stock Quote
Companhia Siderúrgica Nacional
SID
$4.26 (5.18%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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