Mining Stock Bears Get Paid as Iron-Ore Rebound Halted

By Adam Haigh and Jonathan Burgos

(Bloomberg) — Options traders who bet against a rebound in
Australian iron-ore stocks are being proven right.
Contracts that pay out should Fortescue Metals Group Ltd.
fall 10 percent have gained 80 percent since demand for bearish
wagers pushed a measure of option costs to the highest in three
years compared with bullish ones last week. The company?s shares
have slumped 19 percent since Jan. 6, erasing a 19 percent
rebound from a mid-December low. Fortescue is the most shorted
stock on the S&P/ASX 200 Index, according to Markit Group Ltd.
data. Bearish bets on Atlas Iron Ltd. are more than four times
the gauge?s average.

Iron-ore prices rallied as much as 7 percent from a five-
year low reached last month, driving gains in stocks from
Fortescue to Atlas Iron and BC Iron Ltd. amid efforts by China
to speed up $1.1 trillion of infrastructure projects. The
steelmaking material has since resumed its decline, sinking 4.3
percent in four days.

?We were due a bit of a rally from oversold conditions,
but that?s really just a short-term bounce,? Shane Oliver, head
of investment strategy at AMP Capital Investors Ltd., which
oversees more than $127 billion, said by phone from Sydney.
?Sooner or later you?ll see some blow ups? among companies, he
said.

The Bloomberg Commodity Index of 22 energy, agriculture and
metal prices plunged to a 12-year low this week as oversupply
spurred a rout in oil and as slowing economic growth in China
and Europe reduced demand for raw materials such as copper. The
commodity index has fallen since 2011, paring gains from the
first decade of the 2000s. Citigroup Inc. and Goldman Sachs
Group Inc. have said the era of rising prices is over.