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Why the Fortescue (ASX:FMG) share price is struggling this week

The mining giant’s shares are having a tough time of late…
The post Why the Fortescue (ASX:FMG) share price is struggling this week appeared first on The Motley Fool Australia. –

The Fortescue Metals Group Limited (ASX: FMG) share price is down almost 7% since this time last week.

At Wednesday’s market close, however, the miner’s shares broke their negative trend to finish slightly higher at $24.09, up 0.38%.

Here are some possible catalysts that could be dragging down the Fortescue share price.

Spot price of iron ore plummets

After spending the last couple of months above the US$200 barrier, the iron ore spot price has dramatically fallen.

Courtesy of Markets Insider, the steel-making ingredient is trading at US$181.01 per metric tonne as of last night. This represents a fall of close to 16% over the course of the week. It’s worth pointing out that the price of iron ore surged to a record high of US$219.77 in July.

The sharp decrease will have an impact on Fortescue’s bottom line, however, profits are still expected to be churned out. The company reported C1 costs of US$15.23 per wet metric tonne for Q4 FY21. C1 costs refer to the ‘direct’ production costs incurred in mining and processing the iron ore.

China signals end of reliance

Another possible factor weighing on the price of iron ore, and arguably the Fortescue share price, may have been China’s latest rhetoric.

The Asian country has directed some steel producers to cut down on production, in an effort to drive domestic demand. According to CNBC, Chinese mills will need to limit 2021’s output to no more than the volume recorded in 2020.

This is a difficult task as production volumes lifted 12% in the first half compared to the same period in 2020. This means the second half is likely to be lower than H2 FY20 levels.

In the month of May, China produced a monthly record of 99.45 million tonnes of steel. In June, that number dropped 5.7% to 93.88 million tonnes.

There are also concerns that if steelmakers don’t comply with the government’s latest rules, they will face retribution. Officials have warned that failure to comply may result in punishments such as potentially large fines.

Fortescue share price review

While relatively flat year to date, Fortescue shares have gained more than 30% over the last 12 months.

Based on valuation grounds, the company presides a market capitalisation of approximately $74.1 billion.

Fortescue is scheduled to report its FY21 results on 30 August 2021.

The post Why the Fortescue (ASX:FMG) share price is struggling this week appeared first on The Motley Fool Australia.

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More reading

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This leading broker believes Fortescue Metals (ASX:FMG) shares can lift
Own Fortescue (ASX:FMG) shares? Here’s what to look for during reporting season

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.

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