Iron Ore Prices Down, Fortescue Metals Share Price drops 6% (ASX:FMG)

Fortescue Metals Group Ltd [ASX:FMG] is down today 5.77% at time of writing after iron ore prices fell 2.4% to US$165.07 a tonne.

The price drop has also hit BHP Group Ltd [ASX:BHP] and Rio Tinto Ltd [ASX:RIO]. Their share prices are down also by around 3% today.

Prices have dropped, but iron ore prices are still at 2011 levels

Iron ore prices have been ramping up since April last year, after a hit on supply and a boost on demand.

Supply took a hit after Brazilian iron ore miner Vale suffered disruptions to their production because of the pandemic and a dam collapsing.

Brazil is one of the main iron ore exporters into China, along with Australia. Vale had to revise production three times last year, something that boosted iron ore prices.

At the same time, China has been ramping up their demand on iron ore to boost a recovery. Australia is the largest exporter of iron ore into China, followed by Brazil.

China imported 7% more iron ore from Australia last year and Brazil also had a 3.5% increase. China’s demand was such that they had to boost supplies from India. India’s exports into China increased by 88% for the year.

The drop in iron ore prices today comes on concerns of future Chinese demand. According to Metal Bulletin, China is planning to reduce steel production this year.

What could happen next?

Obviously things will depend on China’s demand staying high, and on supply.

Vale is expecting higher production in 2021, between 315–335 million tonnes, as long as it doesn’t suffer any more disruptions. Vale didn’t have a great start of the year with a shiploader at their ore export terminal in northeast Brazil catching fire, but Vale says it won’t have an impact on their iron ore shipments.

High iron ore prices have boosted Fortescue this year. At time of writing, the FMG share price is trading at $23.83 — over a 100% increase in the last 12 months. After such a great year, Fortescue has also paid investors a nice dividend.

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Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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