Why has the Fortescue (ASX:FMG) share price had such a lousy start to December?

What’s caused the company’s shares to fall recently?

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The Fortescue Metals Group Limited (ASX: FMG) share price had a disappointing run in the first few days of December.

Since the beginning of the month, the iron ore producer’s shares have tumbled by almost 5% in value. This puts the company as one of the weaker performers on the S&P/ASX 200 Index (ASX: XJO).

At Friday’s market close, Fortescue shares finished the day down a further 0.87% to $17.10.

What’s happened to Fortescue?

There are a number of reasons Fortescue shares have sunk in recent times.

The price of iron ore dropped after a mini bull run, reaching US$103.17 a tonne at the end of November. At current, the steel-making ingredient is trading at US$101.82, a fall of 1.63% for the first 5 days of this month.

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 tonne for 2021. This has led the price of iron ore to shrink from its lofty highs above the US$200 mark earlier this year.

Furthermore, Fortescue could suffer particularly more than its peers as it produces a lower grade of iron ore. Steel producers prefer higher quality iron ore, which miners Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) supply. Consequently, this puts a squeeze on Fortescue’s margins.

A number of brokers have weighed in on the Fortescue shares following the company’s September quarterly production report.

Goldman Sachs cut its price target by 3.5% to $11, while analysts at Credit Suisse reduced their rating by 33% to $14.

Based on the current Fortescue share price, this implies a downside of 35% and 18%, respectively.

About the Fortescue share price

Over the past 12 months, Fortescue shares have declined around 15% in value. However, when looking at year to date, its losses have declined by 30% for the period.

Fortescue commands a market capitalisation of roughly $53.11 million and has over 3 billion shares on its registry.

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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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