The ASX mining stock Fortescue Ltd (ASX: FMG) suffered a significant sell-off in 2024. It's down 38% since January 2024 (as shown below). I'm asking myself whether this is the right time to pounce on the beaten-up stock.
It's normal for commodity businesses to go through ups and downs because they are exposed to the volatility of supply and demand.
Nearly all of Fortescue's revenue is generated by selling iron ore to China, so the iron ore price is key to the company's success.
Let's consider the latest developments with the resource and how they impact my view on the value offered by the Fortescue share price.
Iron ore price remains above US$100 per tonne
According to Trading Economics, the iron ore price recently rose above US$104 per tonne because Chinese steel mills are increasing their stockpiles with expectations of increased activity in the Chinese spring.
It was noted that the iron ore price had fallen during winter because there was less manufacturing activity in the off-season, which led to a three-month low of output at the major steel mills.
I believe the Fortescue share price suffered so much in 2024 because the iron price fell from above US$140 per tonne at the start of the year to where it is today. China's construction and real estate sectors have been weak this year.
In previous years, I have taken the opportunity to buy Fortescue shares when iron ore conditions were tough. So, perhaps now is a good time to consider the ASX iron ore share.
My view on whether the Fortescue share price is compelling
I have followed the old investment saying of 'buying low and selling high' with Fortescue. I decided to sell almost my entire holding in July for a tidy capital gain (and the big dividends significantly boosted my returns during my ownership).
However, I'm less confident in this resources giant than I was three years ago for three reasons.
First, global iron ore supply is building, which could be a headwind for the iron ore price if global demand doesn't match the increase. The huge Simandou iron ore project in Africa is getting closer to completion, which could be a setback for the possible recovery of Fortescue's share price and profit.
Second, Fortescue has scaled back its green hydrogen ambitions, at least in the short term. I was previously attracted to the diversification that the green energy efforts could create, but this segment now isn't as appealing to me if it's going to be smaller than I anticipated.
Third, with the iron ore price still above US$100 per tonne, conditions aren't quite as weak as I like them to be to invest. There is no financial 'rule' that says the iron ore price will drop below US$100 per tonne, but that's the trigger point where I start being interested because it normally corresponds with a lower Fortescue share price. If President Trump imposes hefty tariffs on China, it could hurt the Chinese economy.
The miner's valuation could fall further in 2025 if the iron ore price drops, which may be the right time to buy, but I'm not rushing to my share broker to invest today.
