The U.S. head fund manager is predicting that as the Chinese economy slows, iron ore prices could tumble as low as $60 by 2014.
Famed hedge fund manager David Einhorn, spoke at the Great Investor’s Best Ideas investment conference in Dallas this week and revealed a new short idea – Iron Ore, writes Canaccord Wealth Management in itsMorning Coffee Newsletter
This is according to the Business Insider, who quoted the Twitter Feed of portfolio manager Leo Isaak of Axios Capital Advisors, who attended the conference.
Einhorn is the founder of New York hedge fund Greenlight Capital. A well known value investor, he made a name for himself, and a lot of money for his investors, by short selling Allied Capital, Lehman Brothers and Green Mountain Coffee Roasters (NASDAQ: GMCR, Stock Forum).
During the conference, he apparently said:
Short iron ore. It’s cheaper for China to import ore from Australia than to get it from their own ground. Ore was less than $20 in 2003; in 2011 it was over $160. While higher ore prices flowed to the bottom line, forecasts of Chinese growth have been far overestimated.
Iron ore is very plentiful and new supply is coming from Africa and Canada, he said.
Ore supply is expected to grow mid-teens over the next few years. Supply exceeds demand, but miners are in the middle of massive expansion. Miners can’t cut projects because they will strand billions in capital. Iron ore is in a bubble and predicts the price could fall to $100 per ton next year, and then will be below $80 a ton in the next year as China’s economy continues to slow.
But prices could also go lower by 2014, potentially to $60 a ton.
According to a published report, Einhorn said United States Steel Corp. (NYSE: X, Stock Forum) would be adversely affected if iron ore prices go to $80. After falling 9.3% in the last 48 hours to $21.55 on Thursday, U.S. Steel has a market cap of $3.1 billion, based on 144.3 million shares outstanding. The 52-week range is $32.52 and $17.67.
Other companies in the iron ore space include:
Labrador Iron Ore Royalty Corp. (TSX: T.LIF, Stock Forum) fell 2.6% to $30 on Thursday, leaving the company with a market cap of $1.92 billion, based on 64 million shares outstanding. The 52-week range is $39 and $26.02.
Alderon Iron Ore Corp. (TSX: T.ADV, Stock Forum) (NYSE: AXX, Stock Forum) eased 1.2% to $1.64, leaving the company with a market cap of $213 million, based on 130 million shares outstanding. The 52-week range is $3.83 and $1.65.
BHP Billiton Ltd. (NYSE: BHP, Stock Forum) rose 1.4% to $71.74, leaving the company with a market cap of $191.8 billion, based on 2.67 billion shares outstanding. The 52-week range is $82.23 and $59.87.
Rio Tinto Plc (NYSE: RIO, Stock Forum) rose 2.7% to $51.31, leaving the company with a market cap of $95 billion, based on 1.85 billion shares outstanding. The 52-week range is $63.18 and $41.59.
Vale SA (NYSE: VALE, Stock Forum) rose 3% to $18.86, leaving the company with a market cap of $134.3 billion, based on 7.12 billion shares outstanding. The 52-week range is $26.87 and $15.77.
