Iron ore miner Fortescue Metals Group Limited’s (ASX: FMG) share price hit $4.63 last week which is a 1 month low and represents a fall of around 11%. The news is even worse for shareholders when the share price is viewed over the first 5 months of this year; over that time frame the share price has lost almost 19% of its value.
The declining Fortescue share price, much like its smaller peers Atlas Iron Limited (ASX: AGO) and BC Iron Limited (ASX: BCI) is largely due to the declining iron ore price. The combination of increased iron ore supply coupled with a slowing Chinese economy which is weakening its demand for the commodity has sent the iron ore price down nearly 25% this year to flirt with the psychological US$100 per tonne level – a level not seen since late 2012.
With Chinese construction data showing a significant decline in activity and reports that Chinese house prices are weakening as well, investors should be careful about predicting a near term upswing in iron ore demand from China.
At the end of the day, Fortescue, like all miners, is beholden to commodity prices. If the iron ore price does bounce back, now could indeed be a great buying opportunity. However the commodity’s price could also keep falling in which case Fortescue’s share price is likely headed lower too.
The current uncertainty facing the iron ore price suggests it would prudent for investors to stay on the side-lines for the time being. Investors shouldn’t hold their breath for a rebound in Fortescue’s share price.