Evergrande’s escape could be helping iron ore companies today…
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The Fortescue Metals Group Limited (ASX: FMG) share price is back in investor sights on Friday. This renewed attention comes after iron ore prices rebounded above US$90 per tonne overnight. Specifically, the steelmaking commodity’s futures increased by more than 5%.
At the time of writing, shares in the iron ore producer are up 4.79% to $16.19. Yet, the Fortescue share price is still nearly 40% below its 52-week high of $26.58.
The reason behind the rally has been attributed to articles published by the media in China outlining ways to manage the Evergrande saga. As a result, sentiment is now more positive that China will do what it can to avoid a collapse of the local real estate development sector.
What’s moving the Fortescue share price on Friday?
Markets have been surprisingly robust throughout the tedious timeline of China Evergrande Group and its debt payments. With around US$308 billion in total liabilities, the property developer has been in a pickle to pay interest on its borrowings. In turn, the potential unraveling of one of China’s largest companies has put pressure on some industries.
Due to its use in construction, iron ore is susceptible to any knock-on effects if Evergrande were to collapse. Because of this, the commodity weakened yesterday as reports flowed in that Deutsche Markt Screening Agentur (DMSA) had not received Evergrande’s interest payment which had come due.
However, more recent reports indicate the company has managed to avoid defaulting by making overdue payments before the end of an extended grace period. That’s a relief for iron ore companies such as Fortescue Metals and its share price.
Additionally, the Chinese government now plans to slowly and carefully dismantle the property giant. This will involve separating its assets and selling them off to other Chinese companies. In taking this approach, the government hopes it will limit repercussions to home buyers and smaller businesses.
The controlled descent could mean less of an impact on the global economy and construction. This would be a major positive for iron ore demand, as opposed to a complete collapse.
As such, ASX-listed iron ore producers are some of the best performers on the Aussie market today. At the time of writing, shares in BHP Group Ltd (ASX: BHP) and Mineral Resources Limited (ASX: MIN) are up more than 3%. Although, the Fortescue share price is performing the strongest out of the big miners this morning.
The post Fortescue (ASX:FMG) share price climbs 5% as iron ore rebounds appeared first on The Motley Fool Australia.
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Motley Fool contributor Mitchell Lawler 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.