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3 reasons why Fortescue Metals Group shares are on the nose

Fortescue Metals Group (ASX: FMG) shares are on the nose today, dropping 17 cents or 3.4% to $4.88. Over the past 52 weeks, the stock has ranged from a low of $2.87 back in June last year up to an intra-day high of $6.22 in February this year.

Today’s fall means Fortescue stock is down 21% from that February high.

Here are 3 reasons why the stock may be selling off today…

1) Overnight, Vale, the world’s largest iron-ore producer, posted a steep decline in first quarter profits, worse than analyst expectations. Vale said iron ore selling prices during quarter were “materially below our consensus estimates.”

2) Speaking of which, the iron ore price has plunged further, and appears to be heading back towards a two-year low. Many analysts expect it to fall from around $US105 a tonne to closer to US$100 a tonne, with some of the more bearish commentators saying it could fall as low as $US80 a tonne.

3) Australian companies like Fortescue, and others including BHP Billiton Limited (ASX: BHP), Atlas Iron Limited (ASX: AGO) and Rio Tinto Limited (ASX: RIO), are barrelling down a pathway of increasing iron ore production in the face of softening Chinese demand. When increased production meets weakening demand, there is only one way for iron ore prices to go, and that’s down.

A better bet than Fortescue Metals Group

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Of the stocks mentioned above, Bruce Jackson has an interest in BHP.

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