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Sell These Two Iron Ore Plays, Analyst Says

Excess iron ore production makes two names strong candidates to short, Axiom Capital’s Gordon Johnson told CNBC on Wednesday.

On “Fast Money,” Johnson said his top two shorts in the space are Rio Tinto and U.S. Steel.

“We think all the mining companies are going to get hit hard, but the reason we like Rio is because they’re the darling of the industry — 3.6 percent, last time we checked, of the float is short, which is low for the industry, 27 buys, 4 holds, 0 sells before us,” he said on “Fast Money.”

U.S. Steel is a somewhat different story.

“They have fixed iron ore costs,” he said. “The rest of the steel makers, they benefit as iron ore prices fall. So as those prices fall, we think X gets hit exponentially. They also have a $5.2 billion unfunded pension liability.”

Part of the reason for the excess capacity is that China is exacerbating excess capacity, bailing out its steel makers in order to avoid job losses and the hit on its GDP.

Trader disclosure: On Sept. 5, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Stephanie Link is long AAPL; Stephanie Link is long JPM; Stephanie Link is long WFC; Stephanie Link is long VALE; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Stephen Weiss is long HK; Stephen Weiss is long QCOM; Stephen Weiss is long MSFT; Stephen Weiss is long VZ; Stephen Weiss is long VOD; Stephen Weiss is long T; Stephen Weiss is long CCNY; Stephen Weiss is long AMATG; Stephen Weiss is short AAPL PUTS; Stephen Weiss is short VALE; Stephen Weiss is short AKS; Dan Nathan is long GS SEPT 90/80 PUT SPREAD; Dan Nathan is long MS JAN 10/5 1X2 PUT SPREAD; Dan Nathan is long INTC SEPT 25/23/21 PUT FLY; Dan Nathan is long CSCO SEPT 17 PUTS; Dan Nathan is long SBUX SEPT 47 PUTS; Dan Nathan is long MSFT OCT 30/28 PUT SPREAD; Dan Nathan is long PG JAN 65/60 PUT SPREAD.

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