Some predict the iron ore price could reach as low as US$70 a tonne by the end of the year. This would be a big hit to Fortescue’s profits.
The post Why did the Fortescue (ASX:FMG) share price have such a lousy month in September? appeared first on The Motley Fool Australia. –
The Fortescue Metals Group Limited (ASX: FMG) share price went on a disappointing run last month. This comes as the price of iron ore continued to sink amid pressure from Chinese policymakers to reduce dependence on Australia.
While the S&P/ASX 200 Index (ASX: XJO) is up 1.05% to 7,260 points today, Fortescue shares are down 1.24% to $14.39 apiece.
What’s dragging Fortescue shares lower?
Iron ore is currently fetching US$115.76 a tonne, plunging 19% since the beginning of September.
The Fortescue share price has trodden along the same lines, falling 30% over the same time.
Chinese lawmakers introduced new rules for its steel producers in an effort to curb reliance on Australian iron ore. Steel mills were instructed to limit 2021 output to no more than 2020 levels, or face penalties.
China wants its steel industry to halt iron ore production at roughly 1 billion tonne for 2021. Consequently, Chinese crude steel production has dropped 8% in July and 13% in August. September figures are still being compiled.
Nonetheless, the result has led the price of iron ore to shrink. And fears are mounting that it could reach as low as US$70 by the end of the year. This would essentially cut more than half of Fortescue’s profits when it was enjoying above US$200 for iron ore.
In addition, broader market weakness has been a hindrance on Fortescue shares. The ASX 200 benchmark index dropped about 3.2% in a month, and 4.6% off its record high of 7,632.8 points.
Fortescue share price snapshot
Up until the end of July, Fortescue shareholders were enjoying strong gains, hitting an all-time high of $26.58 apiece. That all came crashing down in the last two months, with its shares touching a low of $14.15 in late September.
Comparing to this time last year, Fortescue shares are down 10%, with year-to-date losses reaching 40%.
On valuation metrics, Fortescue commands a market capitalisation of roughly $44.86 billion and has approximately 3.1 billion shares on issue.
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Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.