Fortescue Metals Group Ltd [ASX:FMG] shares are down today by 4.6% at time of writing. Shares were trading at $13.14, down from $13.78 at yesterday’s close.
Fortescue is an Australian iron ore producer and exploration company based in Western Australia.
What’s going on?
Iron ore prices dropped by 2.4% overnight to US$95.28 a tonne. In fact, iron ore producer Rio Tinto Ltd [ASX:RIO] also had its shares drop by close to 3% today.
Yet that’s not the only news influencing Fortescue today.
Downer EDI Ltd [ASX:DOW] a service supplier for the mining, infrastructure and transport industries also announced yesterday it’s expanding its relationship with Fortescue Metals. They will be providing mining and maintenance services at Fortescue’s Eliwana iron ore mine in the Pilbara region, in Western Australia.
The $450 million agreement will take place over the course of five years. According to the agreement, Downer will complete early work operations over the first two years to establish the mine. After this initial period, Fortescue’s autonomous mining fleets will take over and Downer will stay at the site for the next three years to provide maintenance services.
Downer’s Chief Executive Officer, Grant Fenn said the company was a leading provider of mining services in Australia adding:
‘Downer has a long-standing relationship with Fortescue, and we are very pleased to be expanding our services. We are proud to be supporting the development of the Western Hub and the communities that will benefit from the mine.’
While shares for Downer EDI opened higher today, they had dropped back to yesterday’s values at time of writing.
What happens next?
In their March 2020 quarterly production update, Fortescue raised their yearly guidance for iron ore shipments from 170–175 million tonnes to 175–177 million tonnes through June citing a record third-quarter performance.
In addition, during a recent presentation, Fortescue confirmed iron ore prices have remained resilient through the crisis, and that the company has seen a 1.3% year-on-year increase in Chinese steel production in the four months to 30 April, 2020.
While demand is still remaining strong, China has dropped their annual economic growth target for this year after all the uncertainty around the pandemic and an expected global slowdown. We could see demand slow in the coming months.
Check out our ‘Aussie Iron Ore Crash 2020’ report that explains why we could see lower iron ore prices and offers three alternative resource investments.