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.
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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