Fortescue (ASX:FMG) share price slides 6% as iron ore woes continue

The world’s fourth largest iron ore miner is watching its shares tumble…

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The Fortescue Metals Group Ltd (ASX: FMG) is plunging yet again as iron ore prices continue their downward trajectory.

At the time of writing, the mining outfit’s shares are down 6.22% to a new 52-week low of $14.32.

What’s causing iron ore prices to fall?

It’s no secret that a slowdown in Chinese demand amid political pressure has led iron ore prices to fall.

In May, the steel-making ingredient touched a record high of US$229.50 per tonne. This translated to bumper profits for Fortescue over the period, with its shares accelerating as a result.

However, Chinese policymakers introduced rules for its steel producers in an effort to curb reliance on Australian iron ore. Chinese mills were instructed to limit 2021 output to no more than 2020 levels, or face harsh consequences.

The Asian giant wants its steel industry to hold iron ore production at around 1 billion tonnes for 2021. In the past two months, Chinese crude steel production sank 8% in July and 12% in August. Although, current levels are still up 5% year-to-date when compared against 2020, indicating further cuts in the coming months.

Fast-forward to today, the current iron ore price has dropped to US$123 per tonne, a fall of almost 14% in September.

The sharp decrease will no doubt have an impact on Fortescue’s bottom line. However, with industry-leading C1 costs of US$13.93 per wet metric tonne, the miner will still be making a profit.

Despite the latest curb in Chinese production, Fortescue is forecasting to maintain iron ore shipments for FY22. The company revealed guidance of 180 million tonnes to 185 million tonnes of iron ore.

C1 costs are expected to slightly rise to US$15.00 to US$15.50 per wet metric tonne (based on an assumed average exchange rate of AUD: USD 0.75).

About the Fortescue share price

It has been a rollercoaster ride for Fortescue investors, with the company’s shares reaching an all-time high of $26.58 in July. This quickly faded in the months following with investors offloading their shares, seeing the share price hit a 52-week low today.

Over the last 12 months, the company’s share price is down around 11%, with year-to-date down close to 40%.

Fortescue commands a market capitalisation of roughly $45 billion and has approximately 3 billion shares on its books.

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Motley Fool contributor Aaron Teboneras 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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