Fortescue Ltd (ASX: FMG) shares have suffered significantly this year, down by 38%, as shown on the chart below. After such a heavy fall, it's worth asking whether this is an opportunity.
The success of ASX mining shares is typically linked to the commodity price. For Fortescue, its key resource, iron ore, has been weak in recent months.
As we've seen in the last eight months, the iron ore price has sunk from more than US$140 per tonne at the start of the year to under US$100 per tonne.
There are a number of reasons for the weakness in the iron ore price, which namely relate to China. Trading Economics reported on some of the latest signs.
Negatives to investing in Fortescue shares
Trading Economics said the iron ore price has come under sustained pressure from soft economic data in China, as well as rising inventories.
Chinese official data showed manufacturing in the country contracted further in August. Prices of new homes in China rose at a slower pace in August as the property sector "struggles to rebound", according to Trading Economics.
Industry data revealed that total inventory of imported iron ore stored at 45 major Chinese ports increased 2.3% over the week as of 29 August to reach 153.7mt, which is the highest level since April 2022.
Fortescue is highly leveraged to changes of the iron ore price because virtually all of its earnings come from iron ore, whereas other miners like BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) have exposure to other commodities like copper.
Some investors may prefer other miners with more earnings diversification so they're not so reliant on a single commodity.
Analyst forecasts are not promising for FY25, or beyond, amid the depressed iron ore price.
The broker UBS forecasts Fortescue's net profit after tax (NPAT) could drop from US$5.66 billion in FY24 to US$3.78 billion in FY25, dropping again to US$3.5 billion in FY26 and declining again to US$3.08 billion in FY27.
For investors focused on the company's green energy efforts, I was recently disappointed to see the company seemingly reduce its efforts with its green energy division. That was one of the main reasons why I recently decided to sell shares (at a much higher Fortescue share price).
Positives about the ASX mining share
Of course, the company hasn't abandoned its green energy efforts entirely. It still wants to pursue green hydrogen, green ammonia, EV battery software and so on. Those areas of the business can still be appealing for a patient investor.
Even if the ASX mining share isn't involved with other commodities, I like that Fortescue is pursuing iron ore diversification by working on an iron ore project in Gabon, Africa called Belinga.
The company is also working on growing its production in Australia, including with the new high-grade project called Iron Bridge.
I regularly suggest that the iron ore price is cyclical, though there's no rule about how long each demand cycle should be. If there's a good time to invest in an ASX iron ore share, I think it's when there's pessimism about the commodity and the share price is low. I believe this is a better time to invest than at the start of 2024 when prices were much higher. Sometimes a positive recovery can surprise the market.
One short-term positive, as noted by Trading Economics, is that a private survey revealed that the Chinese manufacturing sector returned to growth and expanded more than expected last month.
The final positive is that Fortescue's dividend yield could continue to be appealing, with a possible grossed-up dividend yield of 7% in FY25. However, the dividend could decline in FY26 and FY27 if profit drops as expected.
