Fortescue (ASX:FMG) share price up 7% this week after iron ore cracks US$130 a tonne

Fortescue shares are bouncing higher this week following a rebound in iron ore prices

| More on:
Two cheerful miners shake hands while wearing hi-vis and hard hats.

Image source: Getty Images

The Fortescue Metals Group Limited (ASX: FMG) share price is on a run this week following a resurgence in iron ore prices.

At the time of writing, the Fortescue share price is up 1.93% to $15.29. It also gained 5.26% during trade yesterday.

Fortsecue share price up as iron ore spikes

Iron ore prices increased on Monday, 11 October as trading activity picked up in China following the end of its week-long National Day holiday on Friday.

According to Fastmarkets, benchmark iron ore prices increased US$11.65 or 9.4% to US$135.03 a tonne.

The last time iron ore was trading around US$135 a tonne was in early September this year. It hit a similar price in early December last year.

Iron ore prices have rebounded almost 50% since year-to-date lows of US$92.98 a tonne on 20 September.

The swift rebound for iron ore has helped put an end to the free-falling Fortescue share price. It’s bounced around a 7% gain since 20 September lows of $14.20.

Chinese steel output to rebound

According to Bloomberg, there are expectations Chinese steel production will pick up this month after achieving “deeper-than-expected” production cuts.

Back in September, S&P Global flagged that China was on track to reduce its 2021 crude steel output below the 2020 level for the first time since 2016.

Its forecasts suggested a further drop in steel output in September and that it would remain lower in October as output cuts continue to widen.

“Steel output is reportedly set to increase in October in some parts of China, like Tangshan, Jiangsu, Zhejiang and Anhui, after these regions exceeded steel production cuts in September,” Vivek Dhar, commodities analyst at Commonwealth Bank of Australia (ASX: CBA), wrote in a note.

“The impacted mills may see November output either match or exceed October levels.”

Another blow to inflation fears

The resurgence of iron ore prices could be another factor weighing on concerns of elevated inflation.

Investors have become increasingly anxious about how central banks will deal with the recent jump in inflation, driven by factors such as surging oil prices and supply bottlenecks.

According to Reuters, the market is already anticipating a near-certain rate hike by late 2022.

The futures on the federal funds rate, which tracks short-term interest rate expectations, has priced in a quarter-point hike by the US Federal Reserve by either November or December next year.

Fortescue share price in 2021

The Fortescue share price has a mountain to climb, still down around 35% year-to-date.

Encouragingly, it’s formed a bottom around the $14 level and is moving north on the back of a rebound in iron ore prices and optimism surrounding Chinese demand.

Should you invest $1,000 in Fortescue right now?

Before you consider Fortescue , you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Fortescue wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

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.

More on Resources Shares