Why the Fortescue Metals Group Limited share price is ending the week in the red

The Fortescue Metals Group Limited (ASX: FMG) share price is amongst the worst performers on the market once again.

At present its shares are down 4% to $4.88, extending their three-month decline to almost 26%.

Why has it tumbled?

Unsurprisingly the reason for today’s decline is another fall in the iron ore price.

According to Metal Bulletin, the benchmark 62% fines fell by 0.5% to US $60.24 a tonne overnight, meaning it has fallen close to 5% since Tuesday.

But this decline is nothing compared to what was seen from the lower grade 58% fines. The lower grade iron ore fell 2.5% to US$38.99 a tonne last night. This brings its decline to over 8% this week.

As well as Fortescue, the shares of fellow miners BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Atlas Iron Limited (ASX: AGO) have also fallen on the news.

Should you snap up shares?

I would hold off investing in the iron ore producers for now.

Concerns over high inventory levels of the steel-making material at the Chinese ports has weighed heavily on prices in recent days. As has the country’s credit downgrade.

Whilst demand could of course increase and eat into these inventories, with Chinese steel production at a record high I am concerned that China will be left with an oversupply of steel.

As a result, I think there is a chance that iron ore demand will soften, leading to a drop in prices and potentially the shares of Fortescue and its peers.

Instead of gambling on a rebound in the iron ore price, I would suggest investors look at investing their hard-earned money in these high-quality blue-chip shares which I believe have bucketloads of growth 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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