Along with a number of commodities, iron ore rallied sharply in 2016. This was in stark contrast to the prior three years when continually rising supply met flat demand growth. Last year, however, saw an exit of high cost producers, the shutdown of Samarco, and declines in Chinese production. The year also saw a credit surge as Beijing saw growth deteriorating faster than anticipated, with the US Federal Reserve in particular citing China as a key reason for pausing its rate hike program. At Merlon we invest in undervalued companies (measured on the basis of our assessment of sustainable free cash-flow) where misperceptions in the market are adversely impacting share prices. When assessing the sustainable free cash-flow of iron ore miners, we need a long-term view on what a sustainable iron ore price is. Our fundamental research, discussed in detail below, analyses demand, supply and cost to estimate a normalised price.