The Fortescue Ltd (ASX: FMG) share price is down 15% in the past month, 32% since 22 May 2024, and 37% from the start of the year. The chart below shows the pain.
The ASX iron ore share suffered the latest decline following news of a large sell-down by one of its largest long-term shareholders. The sale was a $1.9 billion one, which represents a material amount of Fortescue's market capitalisation. At the time of writing, the company is worth a total of $56 billion.
According to the Australian Financial Review, Capital Group sold those Fortescue shares. This investor has reportedly been on the shareholder register since 2015.
I often talk about how ASX iron ore shares are volatile, and it certainly has been this year.
Should investors be interested in Fortescue shares now that the business is much cheaper?
Supply and demand
Two different supply and demand relationships seem to be hurting the ASX mining share at the moment.
First, the $1.9 billion sale means there is a huge extra supply of Fortescue shares on the market. That will push down the price, at least in the short term.
Second, the iron ore price has fallen significantly over the past few months. It started 2024 above US$140 per tonne and has now dropped to close to US$100 per tonne.
China is the key global buyer of Australian iron ore, and the Asian powerhouse's economy is not as strong as it could be.
For some time, Trading Economics has noted the weak construction environment in China. In its latest analysis, Trading Economics noted there is a "looming implementation of new steel rebar standards in China that could trigger an inventory selloff."
Chinese manufacturing activity has contracted over the last couple of months, and there are fears of a third consecutive month of declines in July.
However, this weakness increases the expectations that there could be more economic stimulus for the Chinese economy.
It's good that Fortescue is performing well operationally in terms of its iron ore mining, but the commodity price is also a key factor for determining how much profit Fortescue generates.
In FY25, Fortescue is expecting to ship between 190mt to 200mt of iron ore including 5mt to 9mt from Iron Bridge. Higher production is normally a good thing, but too much extra supply could hurt the iron ore price.
Is the Fortescue share price a buy?
Some leading brokers certainly seem to think so.
According to reporting by The Australian, both Morgans and JPMorgan are calling the ASX iron ore share a buy, with a price target of $23. That implies a potential rise of more than 20% in the next year.
I'd suggest the sell-off this week may be a shorter-term buy-the-dip opportunity. I sold a large majority of my Fortescue shares at $22.37 and they have dropped materially since then.
The current share price is much more appealing for a potential investor. But, there's no guarantee the iron ore price will recover significantly.
Personally, I'm waiting for an even lower Fortescue share price/iron ore price before considering buying again. Under $17 would make me interested as long as the business continues to invest in its green energy initiatives. However, there are also questions about how much demand there will be for green hydrogen in the future. The outlook does not seem as bright as it was.
