As I wrote in my 11:45 post today, I think the short-term commodities cycle has turned. China’s buying spree, which fueled a furious commodity rally in the last six months, is, if not over, slowing. China’s buying in the second half of the year is likely to be much slower than in the first six months of 2009.
Which leads to my decision to take some money off the table in the most volatile commodity stocks. Fortescue Metals Group (FSUMF.PK) certainly fits that description. Although the stock is down 32% from my purchase date on December 19, 2007, it’s up 129% from the March 9, 2009 market bottom.
Fortescue is so volatile because it has a double link to China. First, China is the major customer for the iron ore coming out of the company’s new mines in Western Australia. Second, China is the major source of capital for the expansion that this company needs to get its cost per ton down and its profitability up.
I’m leaving these shares in my long-term Jubak Picks 50 portfolio because over the long-term I think commodity prices will continue to rise along with the economies of countries such as China and India. But in the short-term I think iron ore stocks are likely to take a rest. As of September 24, 2009 I’m selling these shares out of my 12-18 month Jubak’s Picks portfolio. (Full disclosure: I will sell my shares of Fortescue Metals out of my personal portfolio three days after this is posted.)