The ASX 200 iron ore giant is among the lowest cost producers of the industrial metal.
The post Fortescue share price plunges 7%, but here’s why Twiggy’s not worried about a Chinese iron ore cartel appeared first on The Motley Fool Australia. –
Fortescue Metals Group Ltd (ASX: FMG) shares are sliding today, down more than 7%.
Fortescue shares closed on Friday at $18.60 apiece and are currently trading for $17.31.
This comes as the S&P/ASX 200 Index (ASX: XJO) is down 0.77% in lunchtime trade. The benchmark index is being weighed down by the ASX Materials Index (ASX: XMJ) which is 4.46% lower so far today.
Today’s decline comes on the back of sharply-declining commodity prices last week amid ongoing concerns about the global economic slowdown.
Iron ore prices were particularly hard hit with iron ore futures in Singapore finishing the week almost 12% lower. That’s a level not seen since January.
It appears China’s zero-COVID strategy is heightening concerns of reduced industrial activity in the nation amid possible ongoing lockdowns.
It’s no secret China is a major consumer of Australia’s iron ore.
But hereâs why Fortescue CEO Andrew âTwiggyâ Forrest says heâs not concerned about a possible Chinese iron ore cartel.
Whatâs this about a Chinese iron ore cartel?
As the Motley Fool reported last week, China indicated it may move to monopolise iron ore imports in a bid to bring down the price of the industrial metal.
The plan would see China Iron and Steel Association unite with state-owned steel groups, which would give the combined group the ability to set lower prices.
China has a voracious appetite for the steel-making metal, importing some one billion tonnes per year, or around 70% of the total global annual purchased iron ore production.
Should the plan prove successful and bring down iron ore prices, Fortescue shares could see lower profits.
Forrestâs thoughts on that cartel, however, should go some way to placate Fortescue shareholders.
As the Australian Financial Review reports, he dismissed the newest reports coming out of China, saying itâs âa story which gets trotted out every three yearsâ.
âDemand for our product has remained strong,â he added. âAnd if global demand for iron ore goes down, the last man standing will be the lowest-cost producer. And that is Fortescue.â
The iron ore price slipped 5.7% overnight and is currently trading for US$122 per tonne. This time last year, the metal was trading for more than US$200 per tonne, before sliding to lows around US$90 per tonne in November.
How have Fortescue shares been performing?
Fortescue shares are down 23% over the past 12 months, pressured by iron ore prices coming off their highs.
Over that same period, the ASX 200 is down 11%.
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.