Here’s why the Fortescue (ASX:FMG) share price is down 11% in a week

The company’s shares have been making headlines of late…

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The Fortescue Metals Group Limited (ASX: FMG) share price has come under significant pressure over the past week. This comes despite the iron ore mining outfit not releasing any news since its contract with the Eastern Guruma People.

At the end of Friday, Fortescue shares added to their ongoing woes, closing 1.22% lower to $15.34. That brings its losses to a sizable 11% for the last week, and more than 21% in a month.

Why is the Fortescue share price tumbling?

It’s no secret that Australian iron ore miners have been heavily impacted by the Chinese tiff against the Morrison government.

In fact, from May to July this year, the price of iron ore reached incredible highs of above US$220. However, as media outlets circled around the mammoth profits the miners were bringing in, China quietly implemented measures against this.

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

As such, China wants its steel industry to halt iron ore production at around 1 billion tonnes for 2021. Adhering to the instructions, Chinese crude steel production has dropped 8% in July and 12% in August. And while current levels are still up 5% year-to-date against 2020, further cuts are due in the coming months.

This has led the price of iron ore to shrink. Fears are mounting that it could reach as low as US$70 by the end of the year. Undoubtedly, this would heavily weigh on the bumper profits Fortescue has been enjoying earlier on.

Reflecting on the latest setback, analysts at Bell Potter, cut their rating on Fortescue shares by 7.3% to $20.87. Although, this still represents an upside of 36% in the next 12 months.

About the Fortescue share price

It’s been a disappointing journey for Fortescue shares, having fallen almost 35% in 2021 alone. When zooming out to a 12-month period, its shares are slightly in the red, down almost 4%.

Fortescue is the world’s 4th largest iron ore miner and has a market capitalisation of approximately $47.23 billion.

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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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