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Why has the Fortescue share price gained 10% in a week?

Fortescue shares have been on the move since last Wednesday.
The post Why has the Fortescue share price gained 10% in a week? appeared first on The Motley Fool Australia. –

The Fortescue Metals Group Limited (ASX: FMG) share price has surged in the past week, despite the recent market volatility.

Since this time last Wednesday, the iron ore mining outfit’s shares are up 10% buoyed by upbeat investor sentiment.

And today, Fortescue shares are currently adding to those gains to edge 1.49% higher to $21.08.

For context, the S&P/ASX 200 Index (ASX: XJO) is also in the green, up 0.80% to trade at 7,186 points.

Let’s take a closer look at what’s driving the miner’s shares upwards lately.

Iron ore prices rebound

After hitting a near 3-month low of around US$123 on 18 May, the price of iron ore has suddenly rebounded.

Courtesy of Trading Economics, the steel making ingredient is trading at US$130 per metric tonne at the time of writing. This represents an increase of roughly 5.6% compared to last Wednesday’s closing price.

Nonetheless, the uptick in iron ore prices will have a positive impact on Fortescue’s bottom line.

The company reported industry leading C1 costs of US$15.28 per wet metric tonne for H1 FY22.

C1 costs refer to the ‘direct’ production costs incurred in mining and processing the iron ore.

What’s causing iron ore prices to surge?

A major driving force that’s rallying up the iron ore price rise is China’s latest move to cut borrowing rates and reduce stockpiles of the steel making ingredient. This has led to optimistic sentiment in which futures have climbed across overseas markets.

To support economic growth, Chinese banks slashed interest rates for long-term loans by a record amount last week. Inevitably, this lessens mortgage costs for consumers and thus supports demand to take up new loans.

On the other hand, iron ore stockpiles at major Chinese ports fell for the eighth consecutive week.

The country’s strict COVID-19 zero policy and well documented property slump have weakened demand in the construction sector.

However, while government restrictions have weighed down on market confidence, iron ore consumption is expected to return to normal levels. This is based on stimulus packages released to the public to spur economic activity.

Fortescue share price snapshot

It’s been a rollercoaster ride for Fortescue shares, having moved unpredictably over the past 12 months. Its shares are down almost 2% since this time last year.

Based on valuation metrics, Fortescue presides a market capitalisation of approximately $63.77 billion.

The post Why has the Fortescue share price gained 10% in a week? appeared first on The Motley Fool Australia.

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More reading

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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 Scott Phillips.

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