Why is the Fortescue (ASX:FMG) share price having such a stellar start to the week?

The Fortescue Metals Group Limited (ASX: FMG) share price is bucking the market sell-off today as the outlook for the iron ore price recently improved.

While Russia’s invasion of Ukraine is adding to global stagflation fears and dragging on share markets, the conflict may be boosting the iron ore price.

This could explain why the Fortescue share price is up almost 2% to $19.58 at the time of writing.

ASX iron ore shares defying market weakness

In contrast, the S&P/ASX 200 Index (ASX: XJO) is down 1.24% in late afternoon trading as it appears investors continue to lose their appetite for risk.

However, it’s not only the Fortescue share price that’s getting a boost from the iron ore thematic. The BHP Group Ltd (ASX: BHP) share price jumped 0.92% to a seven-month high of $50.40 at the time of writing. The Rio Tinto Limited (ASX: RIO) share price is trading flat but that’s still way better than the ASX 200.

How Ukraine is boosting the Fortescue share price

The positive sentiment towards iron ore is due to two macro factors. The first is Ukraine, even though the country only produces 40 million tonnes of the commodity a year.

Russia produces even less at 25 million tonnes a year. Their combined output accounts for a mere 3% of the global market.

But the balance between demand and supply is so finely tuned that it doesn’t take much to tip the sentiment scale. This is especially on news that the disruption to Ukraine’s supply is driving iron ore pellet prices higher.

Japan’s Nippon Steel is scrambling to look for new supply of the high-grade product as Ukraine makes up 14% of its supply, as reported in the Australian Financial Review.

Chinese stimulus adds to bullish sentiment

Then there’s China’s economic growth target that was just released. The Asian giant is aiming for 5.5% growth in its GDP this year – its lowest in 30 years.

While that’s well down from the 8.1% increase last year, some experts believe the lower target is still very ambitious, according to the Sydney Morning Herald.

What investors take this to mean is that China will need to rachet up stimulus spending if it wants to achieve its 2022 goal.

Outlook for the Fortescue share price

There’s nothing like talk of Chinese stimulus to fire up the imaginations of iron ore bulls. History has shown that China tends to target infrastructure construction when it’s supporting economic growth. And we know that infrastructure construction adds to demand for the steel-making mineral.

This comes at a time when Brazil is still struggling to lift exports of ore due to ongoing COVID-19 disruptions.

The stars seem to be aligning for iron ore and the Fortescue share price could stay higher for longer if the commodity stays comfortably over US$100 a tonne for 2022.

The post Why is the Fortescue (ASX:FMG) share price having such a stellar start to the week? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brendon Lau owns BHP Billiton Limited, Fortescue Metals Group Limited, and Rio Tinto Ltd. 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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