The Fortescue Metals Group Limited (ASX: FMG) share price is not having a great end to the week.
In morning trade the iron ore producer's shares fell 5% to $5.00, before recovering slightly. At the time of writing its shares are down almost 4% to $5.07.
Why have its shares fallen?
Today's decline is likely to be in response to a drop in the iron ore price overnight.
According to Metal Bulletin, the spot price of the benchmark 62% fines tumbled 2.1% to US$61.96 a tonne. This brings its month-to-date decline to approximately 4.6%.
The decline comes amid further weakness in Chinese steel markets, with analysts at Metal Bulletin stating that bearish sentiment has grown among market participants.
Further compounding the negative sentiment is the latest iron ore forecast by the Department of Industry, Innovation and Science, courtesy of the Australian Financial Review.
In its latest release the government agency advised that it expects the benchmark iron ore price to average US$49.10 a tonne next year, with little improvement being seen in 2019.
This is approximately 21% lower than the current iron ore price and would undoubtedly weigh heavily on the shares of iron ore miners like Fortescue, Atlas Iron Limited (ASX: AGO), Rio Tinto Limited (ASX: RIO), and Mount Gibson Iron Limited (ASX: MGX).
Should you buy the dip?
Although Fortescue would still have highly profitable operations if the iron ore price fell to US$49.10 a tonne, I feel its shares have been priced for greater levels of profitability at present.
Because of this I plan to avoid them until they fall to a level more befitting of a lower iron ore price.
But if you're bullish on the iron ore price and don't believe it will fall as predicted, then Fortescue could prove to be a bit of a bargain buy at its current share price.
