Fortescue (ASX:FMG) share price down as Chinese steel cuts speed up

China’s clampdown on steel has almost halved iron ore prices…

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Fortescue employee wearing a hard hat at a mine looks into the distance as he checks a folder.

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The Fortescue Metals Group Limited (ASX: FMG) is marking fresh year-to-date lows as Chinese steel cuts continue to weigh down the iron ore sector.

At the time of writing, the Fortescue share price is down 2.2% to $17.46.

Chinese steel cuts to widen before year’s end

Chinese policymakers are expected to continue to clamp down on steel production in order to meet energy-consumption and emissions targets.

According to S&P Global, Chinese steel cuts are expected to gather pace in September and widen even further to ensure that steel output remains flat year-on-year.

It reported that “a few mill sources expected China’s steel output cuts to widen further in late September or October, mainly as the overall cuts by mid-September have remained insufficient to keep the country’s 2021 crude steel output within 2020 levels”.

“Hebei, the largest steelmaking province in China, has so far still been the only province on track to its annual steel output target, led by strict cuts carried out in Tangshan city from March,” it reported.

“Steel mills in Jiangsu, Shandong and Liaoning — the second, third and fourth largest steelmaking provinces in China, respectively — have gradually launched steel output cuts since the start of September.”

While the Fortescue share price was able to enjoy skyrocketing iron ore prices at the start of the year, investors are now stuck between a rock and a hard place as the opposite unravels.

Fortescue share price snapshot

The Fortescue share price is down nearly 30% year-to-date and up around 1% in the past year.

The sudden plunge is consistent with iron ore spot prices. They have tumbled from approximately US$220 in late July to an 11-month low of about US$116.

Fortescue’s recent dividend might have helped cushion some of the losses. Its shares went ex-dividend for a generous fully franked $2.11 per share on Monday, 6 September.

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Motley Fool contributor 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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