The iron ore giant’s share price is taking a battering. Let’s look at the details.
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The Fortescue Metals Group Limited (ASX: FMG) share price has flipped from high ascender to swift decliner in mere months. Unfortunately for shareholders, more steel production curbs are being imposed in China. This continues to weigh on the weakening price per tonne of iron ore.
The iron ore producer’s shares closed on Tuesday at $18.08. This means the Fortescue Metals share price has shaved off 31.25% over the past 7 weeks.
Let’s take a look at what is impacting the company.
What’s weighing on the Fortescue Metals share price?
Policies stronger than steel
What was once booming is now bending back down at the peril of China’s production curbs. Iron ore prices fell another 4.5% yesterday to a 10 month low of US$123.84 a tonne. It seems investors are growing increasingly anxious over the drastic plunge in the commodity’s price.
Since July, the iron ore price has been in free fall, tumbling 46% from record highs of US$230 a tonne to today’s current price.
Certainly, the heat on iron ore producers is only getting hotter. According to reports, China’s steel-producing province Yunnan has instructed steel mills to ensure crude steel output decreases in 2021. Meanwhile, government documentation noted that part of September’s planned production would be delayed to November and December.
The steel mills of Yunnan province are responsible for approximately 2.3% of China’s total crude steel production.
On top of this, investors are remaining wary of the looming potential increase in global supply. Brazilian iron ore miner, Vale, recently shared its production forecasts at a conference with analysts. Vale expects to produce 370 million tonnes in 2022, increasing from the 343 million tonnes this year.
If supply was to increase out of pace with demand, this could potentially weaken iron ore prices further, likely dampening the Fortescue Metals share price.
Analysts revise outlook
The not-so-optimistic road ahead has led some analysts to step down their price targets for iron ore. For example, analysts from Westpac Banking Corp (ASX: WBC) have recently shifted year-end forecasts from US$175 per tonne to US$125.
Similarly, Commonwealth Bank of Australia (ASX: CBA) mining and energy economist Vivek Dhar foresees further woes. The economist is forecasting the iron ore price to fall to US$100 by the fourth quarter of 2022.
If these estimates eventuated the Fortescue Metals share price could also be under pressure in the near and medium-term.
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Motley Fool contributor Mitchell Lawler owns shares of Commonwealth Bank of Australia. 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 Bruce Jackson.