The Fortescue Metals Group Ltd (ASX: FMG) share price lost more than 20% in value in March. This compares to S&P/ASX Materials (INDEXASX: XMJ) index which is down 8.50% in the last month and flat ASX 200.
At the time of writing, the Fortescue share price is currently trading at $19.35, up 1%. Let’s take a closer look at what might have caused Fortescue to slide this month.
Why is the Fortescue share price falling?
The Fortescue share price went ex-dividend on 1 March. This means that investors who own or purchased Fortescue shares before 1 March will be eligible to receive its next interim dividend payment of $1.470. Based on its closing price before 1 March of $24.10, this would represent a yield of approximately 6.1%.
A company’s shares typically fall on the ex-dividend date to reflect the dividend being paid. As such, the Fortescue share price fell 6% from $24.11 to $22.68 on March 1.
Emission cuts in China to threaten iron ore markets
Analysts are becoming increasingly cautious about the short-medium term performance of iron ore. More recently, the South China Morning Post reported that factories in the city of Tangshan were ordered to “limit or halt production on days when a heavy pollution alert was in place to reduce the overall emissions of air pollutants such as sulfuric dioxide or nitrogen oxide by 50 per cent”. The clampdown in Tangshan is seen as China’s move to tighten environmental regulations over the next few years.
Analysts at Morgan Stanley believe the emission cuts in Tangshan could mark the beginning of major iron ore headwinds.
On 18 March, the broker believes there could be significantly lower prices in the second half. This would come as China’s steel production softens on the back of stimulus easing. The People’s Bank of China has already begun to reduce COVID-19 related stimulus with moderating money market liquidity and bond issuance.
Mixed broker reports
Morgan Stanley’s maintained a bearish view of iron ore markets on 18 March. This comes with an underweight rating and a $17.45 target price.
Conversely, Macquarie Group Ltd (ASX: MQG) rated Fortescue shares as outperform with a $25.50 target price on 22 March. The broker expects that the proceeds from its new US$1.5 billion senior unsecured note issue will be used to replay a US$750 million facility due in 2022. It believes the balance will help Fortescue fund Capex for its Iron Bridge project. In addition, maintaining an 80% dividend payout ratio.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. 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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