What: Shareholders in iron ore miner Fortescue Metals Group Limited (ASX: FMG) continue to be reminded just why many investors have preferred to have exposure to the diversified resource houses of BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) rather than a single-commodity producer such as Fortescue.
On a day when the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is down 0.3% and BHP and Rio are both down less than 1%, Fortescue by comparison is off nearly 4%!
So what: The iron ore price continues to hover near recent lows of US$94 per tonne. While this situation is worst of all for mid-tier, higher cost producers such as BC Iron Limited (ASX: BCI), Mount Gibson Iron Limited (ASX: MGX) and Atlas Iron Limited (ASX: AGO), it also significantly clouds the earnings outlook for Fortescue – particularly compared to just six months ago when the iron ore price was around 30% higher.
Now what: If the iron ore price remains near current levels the worst affected miners will be the mid-tier players who will be squeezed by increasing volumes from the majors. The outlook for Fortescue's profits however is also less appealing and the single-commodity risk exposure remains.
Now may be the time for investors in Fortescue to perhaps be asking themselves whether they wouldn't be better off invested in BHP or Rio?
