Early-birds get the worm, which is what might be happening among heavily-discounted Australian iron ore mining stocks, some of which have delivered capital gains of more than 60% over the past three weeks.

An alternative view of the sector, which is dependent on demand for steel, especially in China, is that the recovery is a perfect example of a dead-cat bounce.

What appears to have happened is that moves to stimulate faster growth in the Chinese economy, including November’s first cut to official interest rates in two years, have stemmed a steep slide in iron ore prices.

Price Up Modestly

Since the price of high-grade ore hit a five-year low of $66.84 a ton on December 23, it has risen by 6.6% to $71.26/t.

The latest price is still more than 40% below it’s 2014 peak of 130/t, but the modest rebound has sparked a revival of speculative interest in struggling mid-sized miners.

Best performer since the revival started in mid-December is BC Iron, which has risen by 82% from a multi-year low of 27.5c on December 15 to trade earlier today at 50c, a rise made all the more notable because it has been achieved over just 12 trading days during the holiday-shortened stock-exchange trading period.

A Long Way Back

Impressive as BC’s rise looks it needs to be measured against the stock’s spectacular fall during 2014 when it plunged by 94% from a peak price in February of $4.45 to last month’s low.

Other iron ore miners have also reacted positively to signs of a recovery in Chinese demand for the steel-making material.

Atlas Iron, another stock trashed in last year’s sell-off, has risen by 64% since mid-December with a rise from 11c to 18c, with more than half of the rise coming earlier today as the stock added 5.3c, or 39%.

Watch Out For A Reversal

If the price rises had been restricted to just BC and Atlas, the moves could be treated as an isolated incident, or a dead-cat bounce caused by speculators hunting for bargains in the basement, which might be reversed as quickly as they occurred.

However, the recovery is sector-wide with bigger iron ore producers like Fortescue Metals up 22% since its December low, and Mt Gibson Mining up by 54%.

As with BC and Atlas the upward moves by Fortescue and Mt Gibson still leaves them at less than half their 2014 price peaks though the recent trend has caused one analyst at a leading investment bank to predict an end to the iron ore avalanche.

Is The Worst Over?

Morgan Stanley MS -0.23% iron ore specialist, Tom Price, said that in terms of price downside: “the worst is probably over.”

How quickly a recovery takes hold will depend on a combination of steady demand and the closure of high-cost mines, a process which has started but is threatened by the opening of new, low-cost mines, a process which could delay a sustainable price rise for several years.

If that’s the case, and the world’s iron ore surplus hits the 300 million tons a year forecast by another investment bank, Goldman Sachs, then the recent sharp price rises by mid-sized miners could fade as quickly as it has arrived.