At time of writing, the share price of Fortescue Metals Group Ltd [ASX:FMG] is up 1.11%, trading at $9.09.
The FMG share price has now clawed back losses from July and August and now sits close to its 52-week high of $9.55 on 4 July:
The thesis today is that the FMG share price is now in a precarious position and downside risks are rising. With one eye on China, iron ore investors are now in a bizarro world were bad data prompts more buying. At some point, this could unwind.
FMG share price strong over last month
After closing at $6.97 on 12 August, the FMG share price has now gained over 30% in the space of a month.
Contributing to the rise was strong demand from China (perhaps one last push before production curbs) and the revelation that Brazilian production is still not fully back online.
But there are a couple factors that point to this being the tail end of the iron ore renaissance.
One leading indicator is the 1H FY20 trading update released by Sims Metal Management Limited [ASX:SGM].
The scrap metal company notes that the trade war is impacting steel mills and this has hurt their bottom line.
FMG share price could reflect Chinese stimulus bets
Another indicator that is pointing to further pain for FMG (as well as BHP and RIO for that matter), is deteriorating conditions in China.
Industrial production has continued to fall, having hit 4.4% year-on-year last month — the lowest in 17 years.
But perversely, this may have prompted further rises for FMG as investors bet on further broad-based Chinese stimulus.
More infrastructure spending, a Reserve Requirement Ratio (RRR) cut, more construction activity, tax cuts for manufacturers (automakers in particular) — looking at the FMG share price, it seems iron ore investors think China will throw the kitchen sink at stalling growth.
And these things may come to pass.
But consider Chinese debt:
Source: South China Morning Post
This may mean there is a cap on how much stimulus China can inject into the system.
Consequently, iron ore prices could suffer in the medium to long-term.
Considering the FMG share price is up nearly 150% in a 12-month window — now could be an ideal time to realise the appreciation in share price.
For The Rum Rebellion