As the iron ore price jumps to 15-month highs, some analysts have sharpened their warnings that Australian iron ore miners have become overvalued on the back of the price surge.
With the benchmark iron ore price at $US158.50 a tonne ($150.92) this week, well ahead of market projections, analysts have rushed to revise their commodity outlooks.
But most are saying elevated prices won't last, and that trading in iron ore shares risks overheating.
Deutsche Bank slapped "sell" recommendations on Fortescue Metals Group and Atlas Iron early this week, downgrading its assessment of the companies on valuation grounds.
Though the price surge should lift financial year earnings for both Atlas and Fortescue, with Deutsche tipping the recent strength to add 10 per cent to Atlas' earnings and 20 per cent to those at Fortescue, in a sharply worded note analysts said Fortescue's valuation was "starting to look stretched" at prices closing on $5, giving the company a price target of $3.75.
"The stock is pricing in the current spot price of $US150/t until the end of FY15," the note said.
Describing their call on iron ore as "bearish", Deutsche analysts still said they expected the current round of Chinese stockpiling to push spot prices as high as $US170/t, but said they expect a "meaningful price reversal" towards the middle of the year, with iron ore prices likely to dip back below $US120/t.
Based on early price buoyancy, though, the research house upgraded its 2013 average price up 8 per cent to $US125. Credit Suisse analysts said the price spike may be "one last hoorah", and are also tipping a slide in the second half of the year and $US90 average prices by 2015.
Other analysts also revised their commodity outlook, with Hartleys lifting expectations for average iron ore prices by 4.6 per cent to $US120, and Patersons Securities by 10 per cent to $US128.
Deutsche analysts maintained their buy recommendations on both Rio Tinto and BHP Billiton.
They said their favoured sector pick was still Mt Gibson Iron on valuation grounds and because of the Perth-based miner's strong cash position which could lead to acquisitions.
Atlas shares closed down 0.5Â¢ to $1.745 yesterday. Mount Gibson was down 1Â¢ to 82Â¢ and Fortescue was unchanged at $4.74.