Mining mogul Andrew ‘Twiggy’ Forrest bought up $5 million worth of Fortescue Metal shares last week, sending a clear message to those exiting the iron ore market in light of the resource’s recent price volatility.
Forrest spent $4.9 million between Monday and Wednesday to buy around one million shares at an average price of $4.93.
The buy-up came at the same time as investors opted out of the company, with FMG losing almost ten per cent of its value on the back of an 8.3 per cent fall in the price of iron ore.
The investment is relatively small given Forrest already owns around 33 per cent of the company, and will be more than covered by a 10c fully franked interim dividend payment worth $102.7 million.
Forrest made a similar move in September 2013 when he bought up $23 million worth of shares in the iron ore miner.
This coincided with bear comments from fund manager Jim Chanos who said the company has banked on high iron ore prices and a view that the credit-driven investment boom in China will continue.
The most recent turn in the iron ore sector has been driven concerns over credit availability in China, rising iron ore stockpiles and weaker than expected trade data.
Data shows Chinese exports were down 18.1% year-on-year, falling from double digit growth in January, while new bank loans more than halved.
Stockpiles of ore at Chinese ports are at record levels after an aggressive restocking program and fears the market will not be able to absorb a new wave of supply had some analysts predicting prices could fall even further.
However, after falling to $US104.70 a tonne last Monday, the price recovered to $US110.10 before week’s close.
Commentators have remarked that the price jump, while reassuring, has changed industry conditions of growing stockpiles and slumping demand.
Stockpiled iron ore in China is being used as collateral to secure loans, and as repayments for these loans are required, borrowers are forced to sell the commodity in a well-supplied market pushing prices down.
Rio Tinto iron ore chief executive Andrew Harding last week said this credit squeeze is the main reason behind the recent drop in the price.
However steel production in China is set to peak at 1.1 billion tonnes in 2025 with the majors expecting strong demand for the next 10 years.
"The longer term is still intact. I can’t see any change to forecasts. I expect volatility on a regular basis, the longer term is still intact. I can’t see any change to forecasts,” Harding said.
Predictions of the next price rise or fall depend on who you listen to.
Some say the price could fall as low as US$80 a tonne by 2015, while others say that figure is far too short, but do expect some volatility.
Analysts at UBS said in a research note that the volatility of the past week was "making our heads spin", The Australian reported.
However the miners themselves are taking are more measured approach.
“We don’t see any fundamental changes, I think that you will have the periodic bursts of volatility though,” Atlas Iron executive director commercial Mark Hancock said.