Why Fortescue Metals Group Limited shares tumbling lower

One of the worst performing large caps on the market today has been the Fortescue Metals Group Limited (ASX: FMG) share price.

At the time of writing the iron ore producer’s shares are down over 3% to $4.65.

Why are Fortescue Metals’ shares deep in the red today?

Today’s decline appears to be related to continued weakness in the iron ore price.

According to Metal Bulletin, the spot price of the benchmark 62% fines dropped to US$69.93 a tonne on Monday.

Incredibly, this is the seventh consecutive trading day that iron ore prices have fallen and appears to be related to concerns over demand for Chinese steel.

Weakening demand from Chinese steel makers has led to iron ore stockpiles at ports approaching a record high of 159 million tonnes, according to Reuters.

Stockpiles had been building up in anticipation of a strong pickup in construction activity following last month’s Lunar New Year celebration. Unfortunately, this increased demand hasn’t eventuated and oversupply fears have now started to emerge.

Vivek Dhar, an analyst from Commonwealth Bank of Australia (ASX: CBA), told Reuters that “we think there are valid concerns over China’s steel consumption this year, particularly as China’s property sector faces headwinds from policy. More broadly, a clampdown on credit growth will weigh on China’s commodity demand this year.”

As you might expect, the shares of key iron ore producers such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have also come under pressure today.

What next for Fortescue Metals?

I think a lot will depend on where iron ore prices go next. While things do not look positive for the industry now, if demand suddenly picks up then prices could rebound.

But until that happens, I would suggest that investors hold off an investment in Fortescue Metals.

In the meantime I would be buying shares in these stellar growth stocks with enormous long-term potential.

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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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