The Fortescue Metals Group Limited (ASX: FMG) share price will be one to watch today after iron ore stockpiles at Chinese ports and concerns over steel demand led to another drop in the spot iron ore price.
According to Metal Bulletin the spot iron ore price fell 4.1% to US$81.57 a tonne on Monday. This decline means that iron ore has now lost 14% of its value since peaking in February at US$94.86 a tonne.
But it won't just be Fortescue's share price that could drop lower today. Other shares which are likely to come under pressure are of course mining giants BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), as well as junior iron ore miner Atlas Iron Limited (ASX: AGO).
Both BHP Billiton and Rio Tinto's UK-listed shares fell around 4% overnight in London and I wouldn't be overly surprised to see similar drops today in Sydney.
Should you buy the dip?
I wouldn't rush into an investment just yet. Once the iron ore price settles at a more sustainable level, then Fortescue could prove to be a good investment.
But judging by the stockpiles at Chinese ports, things could yet get a lot worse before they get better.
According to the Australian Financial Review, the latest weekly Shanghai SteelHome survey revealed that iron ore inventories at 46 Chinese ports rose by 1.45 million tonnes or 1.1% on March 24. Furthermore, cold rolled coil steel inventories increased a whopping 6.5% to 1.48 million tonnes.
With price weakness creeping into China's steel market, Barclays Capital expects the spot price of iron ore to fall to an average of US$70 a tonne in the second quarter, down from around US$80 a tonne currently.
Should this happen then it seems inevitable that Fortescue, BHP, Rio Tinto, and Atlas will all see their respective share prices take a tumble.
So for now I would suggest investors stay clear of the iron ore miners and focus on other areas of the share market.
