The Fortescue Metals Group Limited (ASX: FMG) share price will be one to watch today after the iron ore price continued to slide lower.
According to Metal Bulletin buyers have suddenly dried up, causing the iron ore price to fall a whopping 8.5% overnight to US$68.04 a tonne.
This now means iron ore has fallen over 28% from its February high of US$94.86 a tonne. Putting the metal in bear market territory.
This doesn’t come as much of a surprise in my opinion considering the rising inventories at Chinese ports. With inventories rising and prices at sky high levels, a sudden and sharp drop seemed inevitable.
How far could it fall?
It looks as though traders think the iron ore price will continue to slide. The Metal Bulletin has reported that short sellers have been taking aim at the metal, putting significant selling pressure on the metal.
And with no buyers willing to support prices, I don’t believe it will be long until we see iron ore at US$60 a tonne or lower again.
Should you sell Fortescue Metals’ shares?
Although I am a huge fan of Fortescue and believe management has done an incredible job at lowering its debt and its cash costs, I am concerned that the bumper profits that have been built into its share price will not be realised.
In my opinion this leaves its shares with significant downside risk and very limited upside potential.
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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