Although the market has bounced back from yesterday's decline and is up 0.3% in morning trade, the Fortescue Metals Group Limited (ASX: FMG) share price and the Atlas Iron Limited (ASX: AGO) share price have sunk deep into the red.
At the time of writing the shares of the two leading iron producers are down 2.5% and 5%, respectively.
Why have they sunk lower?
Overnight the spot iron ore price continued to slide lower and hit a two-week low.
According to Metal Bulletin the spot price of the benchmark 62% fines tumbled 1% to US$76.36 a tonne.
The 58% fines, which is what Fortescue produces, performed far worse than the benchmark grade. The lower grade iron ore fell 2.2% to US$48.97 a tonne last night.
Furthermore, with iron ore futures also on the decline, it appears as though the spot price could drift even lower on Wednesday.
This latest decline appears to be related to concerns over pricing in steel markets. After all, earlier this month the China Iron and Steel Association (CISA) warned that prices for steel futures were not being driven by increased demand or supply issues.
According to Reuters, the CISA felt traders were being misled in regards to capacity cuts and its environmental policies, causing steel prices to rise unnecessarily.
Should steel prices come falling down then it seems inevitable that iron ore will as well.
Should you buy the dip?
While I think Fortescue is a high quality miner with world class operations, I'd rather wait for a better entry point.
Should iron ore prices fall as low as many are predicting, then I feel it is very likely that Fortescue's share price will be dragged down as well. Once prices have bottomed then I would be first in the queue to invest.
However, if you think iron ore can still remain at this level for the foreseeable future then Fortescue and its dividend could be a great option in the resources sector.
