Rio, BHP investors may be too cautious

LAUNCESTON, Australia: If you are looking for signs that the China-led surge in iron ore and steel prices is likely to fizzle, the fact that the share prices of producers are lagging miles behind is a strong indicator that the commodity rally may be shaky.

Spot iron ore for delivery to China has surged almost 43 percent this year, closing on Wednesday at $61 a ton. Those gains looked more impressive two weeks ago when prices hit $68.70, its highest since January last year.

In contrast, Rio Tinto, the Anglo-Australian miner that derives some 90 percent of its profits from the steel-making ingredient, is up just 7 percent this year in Australian dollar terms, and 9.5 percent in U.S. dollars.

Fellow major producer BHP Billiton, has gained 5.2 percent in Australian dollars and 7.8 percent in U.S. currency.

While top producer, Brazil's Vale, has done significantly better, gaining 35 percent in the local real since the start of the year, and 50 percent in greenbacks.

It's worth noting that iron ore, despite its surge so far this year, is still 68 percent below its all-time high above $190 a ton, reached in February 2011.

Both Rio Tinto and BHP didn't fall quite as dramatically from the record iron ore price, having respectively declined 45 percent and 55.5 percent in Australian dollars and 60 percent and 67 percent in U.S dollars since then.