Is the worst over for iron ore stocks?
If shareholders got a dollar every time this question is asked, they would nearly make back their losses by investing in the embattled sector.
But this clichéd question will be on the lips of most market commentators after the price of iron ore staged a dramatic 5.9% rebound to $US54.04 a tonne – which marks the best one-day gain since October 2012, according to data from the Metal Bulletin.
The jump in iron ore comes on the back of BHP Billiton Limited's (ASX: BHP) decision to postpone its Port Hedland project to tackle congestion issues.
The bad news is that most experts do not think BHP's move is enough to turn the tide on iron ore, which has fallen close to 60% since the start of 2014.
However, there is a "but" and I'll talk about that in a bit.
The reason why most analysts are still bearish on the sector is because BHP's move could effectively remove around 50 million tonnes of ore from the global market in 2017, and that's not enough to offset the oversupply problem.
Analysts predict that the amount of surplus seaborne iron ore will hit 300 million tonnes in 2017.
Further, there's a chance BHP can still hit peak production of 290 million tonnes even without the port expansion.
If that isn't enough to scare investors, the Canadian Imperial Bank of Commerce (CIBC) is the latest to ring the warning bell for the sector as its analysts believe the price of iron ore is set to crash to $US37.50 a tonne after 2015.
The arithmetic is bearish, but here's the silver lining I alluded to earlier: it will be interesting to see how the other major iron ore producers react to BHP's decision.
What has happened in the past few months is nothing short of a stare down between the big boys of the iron ore market. BHP and Rio Tinto Limited (ASX: RIO) in particular have been steadfast in their commitment to dig as much ore out of the ground as they possibly can.
But BHP blinked. This may actually prompt other major suppliers to take a less hardline stand as tension eases. If that happens, it will be enough to turn sentiment.
Further, there are other supportive factors for iron ore. Macquarie's latest commodity survey shows that demand for iron ore has actually improved in April as orders for steel construction picked up.
For today at least, investors are optimists.
Shares in Fortescue Metals Group Limited (ASX: FMG) surged 10.8% to $2.11 as it finally managed to sell some bonds to ease balance sheet pressure, while its larger rivals, BHP and Rio Tinto are up around 2% each to $30.99 and $56.31, respectively.
However, the standout has to be iron ore junior BC Iron Limited (ASX: BCI) with the stock rallying 30.8% to a three-week high of 34 cents after management released its quarterly activities report.
Speculation that BC Iron may follow Atlas Iron Limited (ASX: AGO) and succumb to the slump in iron ore price may be premature – if the recovery in the commodity isn't a "dead cat bounce" (where the price starts to fall again after a sharp bounce).
The jury is still out on the iron ore cat.
But if you are looking for a great investment idea in the resources space, check out what our experts have uncovered below.
