The sudden collapse of iron ore prices sent the Fortescue Metals Group Limited (ASX: FMG) share price into free fall, down almost 20% in August to a 5 month low of $20.02.
Iron ore prices have rapidly deteriorated from record highs of ~US$230/t to around US$150/t after China pledged to reduce its 2021 steel output in an effort to curb carbon emissions.
Steel producers in major industrial provinces including Anhui, Gansu, Fujian, Jiangsu, Jiangxi, Shandong, and Yunnan were told to limit their production to 2020 volumes.
Iron ore markets have managed to find some support this week on steel demand optimism.
Bloomberg reported that China's central bank chief viewed to "stabilise the supply of credit and boost the amount of money supporting smaller businesses and the real economy, after both credit and economic growth slowed in July".
The prospect of accommodative policies might be why the Fortescue share price has managed to find some support around 5-month lows this week.
But looking ahead, analysts think there could be more pain for iron ore prices.
Image source: Getty Images
A bleak outlook for iron ore
According to an article featured on Mining.com, analysts Erik Hedbord and Richard Lu at commodities consultancy CRU Group said a further drop in iron ore prices is possible.
"CRU forecasts iron ore prices to decline further towards the end of the year, as we see a more balanced market with Chinese demand likely to stabilise for the rest of the year, while seaborne supply continues to improve,".
Alongside stabilising demand from China, shipment volumes from iron ore producers in Australia typically improve in the fourth quarter, according to CRU analysts.
Fortescue share price snapshot
The Fortescue share price has tumbled well into negative territory, down 19.5% year-to-date.
The company is expected to release its FY21 full year results on Monday, 30 August.
