The Fortescue Metals Group Limited (ASX: FMG) share price was selling off sharply on Wednesday. Fortescue shares closed the day down 5.34% to $14.
Iron ore prices pull back
Iron ore spot prices retreated on Tuesday, amid limited trading at Chinese ports, sources told Fastmarkets.
For instance, benchmark iron ore prices fell US$6.03 or 4.5% to US$129 a tonne.
Chinese iron ore futures on the Dalian Commodity Exchange also tumbled on Wednesday.
The most active futures contracts for January 2022 delivery is currently down 4.5% to 740 yuan (US$114) a tonne.
What’s next for iron ore?
Australia and New Zealand Banking Group senior commodity strategist Daniel Hynes expects Chinese steel demand to continue to flatline towards the end of the year, according to Bloomberg.
“China’s plans to have a flat steel production growth this year look possible, as output curbs have been accelerated by power shortfalls.”
Hynes said that China, the world’s largest construction and manufacturing material producer, will have to contract 10% in annual terms between September and December to meet its decarbonisation goals.
On the other hand, Commonwealth Bank of Australia commodities analyst Vivek Dhar wrote that “steel output is reportedly set to increase in October in some parts of China, like Tangshan, Jiangsu, Zhejiang and Anhui, after these regions exceeded steel production cuts in September.”
Weak steel output could continue into 2022, ahead of Beijing’s Winter Olympic Games in February.
This is because, in the past, authorities have shut down a number of industrial activities near the capital to keep the sky as blue as possible.
Fortescue share price snapshot
Fortescue’s year-to-date return continues to linger around the negative 40% level.
The sharp selling between early August and late September appears to have largely subsided. This is as the Fortescue share price consolidates around the $14 level.
Despite Fortescue shares finding a footing around $14, many experts point to lower iron ore prices in 2022. One such expert is the Australian government’s commodity forecaster, the Office of the Chief Economist (OCE).
The OCE forecasts iron ore to average around US$150 a tonne in 2021. Further, it predicts this will fall to below US$100 a tonne in 2022.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. 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.
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