The Fortescue Metals Group Limited (ASX: FMG) share price is struggling to push higher this week as new steel production curbs in China continues to cripple iron ore prices.
At the time of writing, shares in the iron ore major are down 1.85% to $18.07.
Image source: Getty Images
Fortescue share price threatens 10-month lows
Iron ore prices tanked another 4.5% on Monday to US$123.84/t due to weak buying interest, according to Fastmarkets MB.
China's iron ore demand is expected to weaken in the second half of the year after policymakers vowed to limit crude steel output to curb industrial pollution.
On Monday, Reuters reported further output curbs on various commodities including aluminium, steel and cement.
"As of August, Yunnan aluminium smelters had already shut down nearly 1 million tonnes of annual capacity due to power curbs, state-backed research house Antaike said earlier this month. "
The Yunnan province, which is home to around 2.3% of China's total crude steel output was also asked to curtail production.
"The local government asked Yunnan steel mills to adjust production schedules while ensuring that its 2021 crude steel output falls, according to the document."
"Part of the planned September crude steel production would be postponed to the last two months of the year," it added.
More broadly speaking, Reuters said that "Beijing has warned two-thirds of China's provinces and territories for missing their [energy] intensity targets in the first half of the year."
What does this mean for Fortescue?
According to Fortescue's annual report, the Platts 62% iron ore price averaged US$154/dry metric tonne (dmt) in FY21.
Fortescue's lower grade iron ore managed to achieve a realised price of US$135/dmt, increasing by 72% over the prior year.
With current spot prices well below Platt's FY21 average, this could spell a cloudy outlook for Fortescue.
Fortescue share price tumbles in 2021
The Fortescue share price has cratered amidst the sharp decline in iron ore prices, down 27% year-to-date.
