Unfortunately for the Fortescue Metals Group Limited (ASX: FMG) share price, the fall in iron ore prices resumed overnight.
After a slight rebound on Friday, the spot price of the benchmark 62% fines tumbled almost 3.3% overnight to US$55.90 a tonne according to Metal Bulletin.
This means that the price of 62% fines has fallen close to 30% year-to-date and is trading at its lowest level since early October of last year.
It wasn’t just the 62% fines that sank overnight. Further selling of 58% fines iron ore led to its spot price falling over 1.5% to US$38.90 a tonne. Weakness in Chinese steel markets is largely behind the move.
As you might expect, this has weighed on the shares of iron ore producer today. In early trade Fortescue share price, the BHP Billiton Limited (ASX: BHP) share price, the Rio Tinto Limited (ASX: RIO) share price, and the Mount Gibson Iron Limited (ASX: MGX) share price have all tumbled lower.
Unfortunately Chinese futures currently point to further declines for iron ore today and moving forward I can’t see things improving.
Considering stockpiles at Chinese ports are still at high levels and demand is expected to weaken, it is hard to be bullish on the base metal at this point. Especially with supply from Brazil and here in Australia expected to increase.
Because of this I continue to believe that the spot price of 62% fines iron ore will fall below US$50 a tonne later this year.
As this is likely to drag the share prices of iron ore miners lower, I would suggest investors avoid them and focus on opportunities elsewhere in the market.
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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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