After rising 3.9% on Tuesday, Fortescue Metals Group Limited (ASX: FMG) has again returned to the red with its shares down over 3% in early trade.
In fact, the stock fell as low as $4.31 apiece this morning, which marked its lowest point for the 2014 calendar year. While it has since recovered slightly to be sitting at $4.40, it is still sitting more than 24% below its price at the beginning of the year.
Here are three reasons why the shares have dropped again today:
1. The iron ore price sunk to a multi-year low overnight and is now sitting at just US$97.50 per tonne. Some more bearish analysts have forecast the commodity's price to sink as low as US$80 a tonne, which would heavily impact Fortescue's earnings.
2. Like other iron ore miners like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), Fortescue is heavily ramping up production levels. Although this additional supply will help bolster earnings, it will also apply further downwards pressure on iron ore's price as demand continues to slow.
3. Although it is aiming to dramatically reduce its breakeven price, Fortescue still maintains a far higher breakeven price than its two major competitors. While Rio Tinto and BHP Billiton would remain profitable even if iron ore fell as low as US$50 a tonne, Fortescue's breakeven price is currently estimated to be around US$72 a tonne, making it a riskier investment.
A (much) better bet than Fortescue
Although Fortescue's shares have fallen considerably, it's still not the stock for me with the sector remaining far too volatile. But the good news is, there are still plenty of appealing prospects!
