Yesterday, Bloomberg reported that iron ore has fallen low and is now in the bear market over China’s demand concerns. China and its effect on commodity prices has been a much discussed theme lately, BAML’s investor poll flagged decline in Chinese industrial demand as a leading market fear. Iron ore’s fall this year began in February and that is when related stocks with heavy exposure in iron-ore mining got pressured. The price of 62 percent iron ore fell another 1.3 percent to $126.4/ton, according to The Steel Index Ltd, now down 20 percent since February.
Metals are plummeting to new lows every other day, but we are noting iron ore separately because two legendary investors, Jim Chanos and David Einhorn, are shorting iron ore. Until we last heard from them on this holding, they were not profiting on these shorts. So now is a good time to see how they are doing in their bearish bets.
David Einhorn Shorting Iron Ore
David Einhorn has not discussed the specific companies he is shorting in the iron ore sector, although he revealed his short bias towards the sector in his annual 2012 letter. Since Einhorn is known to be undeterred by losses and takes positions usually over a extended period, we are certain that he still has exposure in the iron ore sector. Some of the companies that could be targets are BHP Billiton plc (ADR) (NYSE:BBL) down 15 percent YTD; Rio Tinto plc (ADR) (NYSE:RIO) down 23 percent YTD; Vale SA (ADR) (NYSE:VALE) down 23 percent; and the best one, Cliffs Natural Resources Inc (NYSE:CLF), down 42 percent YTD.
Total short interest in Cliffs Natural Resources Inc (NYSE:CLF) is peaking at 24 percent of outstanding shares, the highest ever.
Around mid-year of 2012, Greenlight was short in United States Steel Corporation (NYSE:X), although it is not clear if he is still short on this one. United States Steel Corporation (NYSE:X) has fallen 22 percent YTD, and 6 percent in the last five days. The last time Einhorn talked about iron ore shorts, it was in the 4Q2012 investor letter, and he was losing on the position but was going to stick to it.
Jim Chanos has been short Fortescue Metals Group Limited (ASX:FMG), and he discussed his thesis on this investment in September 2012. As we have no idea when Chanos initiated his shorts in iron miners, there is no way to know if he is up on this short or not. The Australian miner is down 25.8 percent year to date, out of which it has lost 12 percent in the last five days, and judging by the headwinds surrounding the sector, the fall is going to worsen.
Andrew Feldstein of BlueMountain Capital is also short Fortescue Metals Group Limited (ASX:FMG).