Why is the Fortescue (ASX:FMG) share price sliding 10% in 2021?

Despite iron ore prices sitting at record levels, Fortescue shares have gone nowhere in 2021.

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Its been a forwards and backwards year for the Fortescue Metals Group Ltd (ASX: FMG) share price.

The iron ore major staged an extraordinary ~55% run between late November 2020 and early January this year. By 8 January, Fortescue shares had hit an all-time record high of $26.40.

At its record valuation, iron ore prices were fetching roughly US$170/tonne.

Fast forward to today, iron ore prices have surged much higher, currently trading around US$210/tonne. The Fortescue share price, meanwhile, is down 9.76% year-to-date, trading at $22.38 at the market close today.

With iron ore prices standing tall, why do Fortescue shares continue to slide sideways?

Expectations that iron ore prices have peaked

The Australian Financial Review last week reported a number of factors that could drive iron ore prices lower in the short to medium term.

This included Brazil moving back to full production, a slowdown in Chinese consumption, sky high prices incentivising new projects to come online and less iron ore dependent ways to produce steel.

China clamps down on commodities

China’s commodity hungry economy is not happy with sky high prices.

Last month, China announced plans to increase domestic iron ore production in response to apparent “unreasonable restrictions” on trade with Australia.

China also wants to improve its domestic management of commodities to safeguard price stability, investigate malicious trading and crackdown on suspicious pricing behaviours.

Last Thursday, Yuan Talks reported that China’s top economic planner, the National Development and Reform Commission (NDRC), would release state reserves of copper, aluminium and zinc in open auctions.

The government body said that it was willing to increase supply and stabilise prices by releasing more reserves in the future, based on market conditions.

Yesterday, China’s most-traded iron ore futures contracts in the Dalian Commodity Exchange tanked more than 6% after the NDRC said it would closely monitor iron ore markets to punish monopolistic agreements and check for abnormal transactions, speculation, and the spread of false information to drive up prices.

Foolish takeaway

While iron ore spot prices are holding above the US$200/tonne mark, it’s possible that factors including China’s clampdown on surging prices, and expectations that iron ore prices could go lower in the medium to long term, could be weighing down the Fortescue share price.

Fortescue shares have underperformed the broader S&P/ASX 200 Index (ASX: XJO), sliding by about 9.70% year-to-date.

Should you invest $1,000 in Fortescue right now?

Before you consider Fortescue, you'll want to hear this.

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Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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