The Fortescue Ltd (ASX: FMG) share price has been through some pain recently. It's down 21% from 22 May 2024 and has fallen 27% in the past six months, as shown on the chart below.
It has been one of the worst-performing ASX blue chips in 2024 to date.
When investments fall heavily, there is an opportunity to buy them at a discounted price. There's no guarantee that the ASX mining share will rebound in the short term or longer term. However, history has shown that commodity prices can move cyclically, and therefore, the Fortescue share price could be a candidate for a contrarian opportunity when it's at a low price.
Iron ore price sinks
The iron ore price fell by approximately 10% in June amid uncertainty regarding demand from China, the top consumer of iron ore. According to Trading Economics, there have been signs of "abundant supply" in the country, which "weighed on the market".
On top of that, Iron ore production from Chinese miners increased 13.4% year over year from January 1, 2024, to May 2024, while iron ore imports rose by 7%. Despite this, steel production declined by 1.4% year over year.
There is uncertainty about what the upcoming Chinese manufacturing PMI (purchasing managers' index) figures will show – it could provide useful insights into the world's second-largest economy.
However, Trading Economics also points to some positives. For example, Beijing reportedly recently relaxed homebuying curbs which could boost the property market and increase steel demand for housing construction. Some of those measures, revealed at the end of June, included lower mortgage rates and minimum downpayment ratios which have already been enacted.
Iron ore is the key earnings generator for Fortescue, so weakness in the iron ore price isn't ideal, but it explains why the Fortescue share price has fallen as far as it has.
Is this a good time to invest at this Fortescue share price?
I believe it can be beneficial to invest in cyclical stocks when they are at their lowest points in the cycle. I wouldn't describe the iron ore price as being at a depressed level, as it is still trading above US$100 per tonne. If it were to drop below that level, I would anticipate a drop in Fortescue shares. Should Fortescue shares fall below $20, I think it could be a smart idea to consider investing.
I should mention that the company is also becoming increasingly involved with green energy through green hydrogen, green ammonia, and high-quality batteries. We also learned recently that Fortescue is selling software related to electric batteries, which could be another nice earner for the business if it wins more customers. The Fortescue share price sell-off means we can get cheaper exposure to this side of the business.
According to the estimates on Commsec, the Fortescue share price is valued at under 9x FY25's estimated earnings with a grossed-up dividend yield of 9.4%.
