The iron ore price slump is sending Fortescue Metals Group Limited shares lower

The iron ore price dropped below US$60 a tonne overnight and has now been in a steady decline for most of 2017 after it hit highs around US$90 a tonne last summer.

Unfortunately for investors the price of iron ore moves in mysterious ways and is almost exclusively determined by Chinese demand, which is an input factor few (if any) in markets know how to accurately predict.

That’s not surprising given the complexities and scale of China’s urbanisation projects, alongside its government’s recent commitment to cut pollutants including those emitted by Chinese steel mills.

Iron ore is the key steel-making ingredient and if China’s construction super-cycle is petering out while its commitment to reducing pollution becomes increasingly existential then iron ore prices may be in a long-term bear market.

Over the short term prices may be volatile, but hope of a return to super-cycle price peaks above US$100 a tonne look unrealistic.

This means investors in the likes of Fortescue Metals Group Limited (ASX: FMG), BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) may continue to face a bumpy ride over the 12 to 24 months ahead.

Today, shares in the still leveraged Fortescue are down 2.3% to $4.85 and down 18% over the past year.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

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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