Fortescue (ASX:FMG) share price under most pressure as iron ore crashes to bear market

Iron ore has zoomed from hero to zero and it's the Fortescue share price that may have most to lose.

| More on:
A shadow bear faces a man against the backdrop of a falling share price.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The iron ore price tumbled into bear market territory and it's the Fortescue Metals Group Limited (ASX: FMG) share price that's feeling most of the heat.

The price of the steel making mineral plunged 7.4% to US$181.57 a tonne on Friday, reported the Australian Financial Review.

This puts it firmly in a bear market as it has fallen 23.5% from its record high in May of US$237.57 a tonne. The technical definition of a bear market is a peak-to-trough fall of 20% or more.  

Iron ore bear market mauls Fortescue and friends

This is why the ASX iron ore majors are underperforming today. The Fortescue share price lost 2.1% to $24.40 at the time of writing.

The BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price also lagged the market. But BHP inched up 0.2% to $53.62 and Rio Tinto is flat at $133.41.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) jumped 1.4% to a new record high of 7,492 points ahead of the close.

The sell-off in the Fortescue share price comes even as the miner is speculated to declare a bumper dividend this month.

Why the Fortescue share price is worse affected

Fortescue is regarded as the marginal player among the majors as its earnings are more leveraged to the iron ore price. This is one reason why it's lagging the group.

Another reason is the risk that its lower quality iron ore export will decline more than higher purity ore from its bigger brothers.

The latest sell-off in the commodity is driven by China's campaign to limit steel production to curb emissions.

Chinese steel output finally falling

The Chinese government had limited success in persuading its steel mills from cutting production. But its persistence may be paying off.

While steel output climbed 12% in the first half of calendar 2021, the AFR quoted Bloomberg as saying that the daily crude-steel output at major mills fell 5.6% in the first 10 days of July from June. This followed a drop a similar decline in June.

"The world's fourth-largest steel producer, Shagang Group, said last week that it would curtail production and overseas sales to comply with government efforts to cut emissions," said the AFR.

"Additionally, Chinese steel mills have reportedly resold contracted iron ore volume back to the market, according to S&P Global Platts."

Volatility hangs over Fortescue share price

If Chinese steel producers are going to limit output, they may favour higher quality ore over what Fortescue sells.

This is because higher grade ore requires less coking coal. The price of coal has also surged along with most commodities, so it could be more economical for mills to use iron ore with less impurities.

However, experts warn that we won't know for sure until the price volatility afflicting the commodity market subsides.

And that could take weeks.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Fortescue Metals Group Limited, and Rio Tinto Ltd. Follow me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Fallers

A worried man holds his head and look at his computer.
Share Fallers

Why Graincorp, Light & Wonder, Orica, and Wildcat shares are falling today

These shares are having a tough time on Thursday. But why?

Read more »

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today
Share Fallers

Why Insignia, Light & Wonder, Mineral Resources, and Nuix shares are sinking today

These shares are having a difficult time on hump day. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Endeavour, Global Data Centre, OFX, and Paladin Energy shares are dropping today

Why are these shares under pressure today? Let's find out.

Read more »

A man sits wide-eyed at a desk with a laptop open and holds one hand to his forehead with an extremely worried look on his face as he reads news of the Bitcoin price falling today on his mobile phone
Share Fallers

ASX 200 uranium stock alert: Paladin Energy shares just crashed 29%!

Paladin Energy shares are under intense selling pressure on Tuesday.

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Champion Iron, Endeavour, Infomedia, and Resolute Mining shares are sinking today

These shares are starting the week in the red. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Arcadium Lithium, Block, Jumbo, and Mineral Resources shares

These shares are ending the week in the red. Why are investors selling them?

Read more »

A woman with short brown hair and wearing a yellow top looks at the camera with a puzzled and shocked look on her face as the Westpac share price goes down for no reason today
Share Fallers

Why Clearview, NAB, Resolute Mining, and Westpac shares are dropping today

These shares are under pressure today. But why?

Read more »

A man looking at his laptop and thinking.
Bank Shares

Why is the Bendigo Bank share price tanking today?

There are a few things that could be driving this bank lower today.

Read more »