Why the FMG share price is under pressure again today
Shares in iron ore miner Fortescue Metals Group have declined 17% in the last month.
Shares in iron ore miner Fortescue Metals Group (ASX: FMG) are among the most traded shares on the ASX boards on Tuesday. The stock was trading 1.5% lower at $18.13 at the time of writing.
What is weighing down the FMG stock price?
It is fair to say that last month hasn’t been great for Fortescue investors. The stock has lost more than 17% of its value since mid-August, with a number of reasons contributing to this slide.
One reason, as discussed previously, has been the hefty dividend that Australia’s third largest iron ore miner is paying out to its shareholders. The company declared a fully-franked final dividend of $2.11 a share, and accordingly the share price has dropped by that amount to reflect the payout to investors this month.
But the biggest contributor has been the continuing slide in iron ore prices. Overnight, spot prices for benchmark 62% fines product dropped another 4.6% to US$123.84 a tonne, the lowest point since December 2020.
The latest trigger seems to be China’s steel-producing province of Yunnan asking local mills to adjust production schedules to ensure the crude steel output falls in 2021. This comes after China vowed to limit crude steel output this year to curb industrial pollution.
Iron ore prices have now dropped more than 45% from their peak of US$237 a tonne in May. Prices of the steel making ingredient this year largely traded above US$200 a tonne between April and August due to a spike in demand in China and global supply constraints, which immensely benefited the big miners and contributed to the large dividends they have paid this year.
But the market situation has clearly turned and analysts expect further declines. Estimates from the federal government indicate iron ore prices are set to ease over the second half of 2021, but should stay above US$100 a tonne until late-2022.
Despite its size, Fortescue is often considered more vulnerable to market volatility compared to its larger peers because of its slightly lower quality of ore. The company has sought to make up for this by blending its product with higher quality ore and shipping higher volumes.
Fortescue expects to maintain iron ore shipments in FY22 within a 180 million-185 million tonne range. However, it has forecast C1 production costs to rise slightly to US$15-$15.50 per wet metric tonne.
But the cloudy outlook for the miners has resulted in some investors booking profits or exiting their shares. The likely revising of analysts’ earnings estimates could cloud the outlook further, and Fortescue investors are hoping the bottom has been reached.
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