The Fortescue share price is falling 6% on Tuesday. Here’s why

asx iron ore share price crash represented by meteor speeding through spaceasx iron ore share price crash represented by meteor speeding through space

The Fortescue Metals Group Limited (ASX: FMG) share price is coming under selling pressure today. This is despite the iron ore mining outfit not releasing any price sensitive announcements to the ASX.

At the time of writing, Fortescue shares are fetching for $19.81, down 6.64%.

In comparison, the S&P/ASX 200 Index (ASX: XJO) is sitting at 7,298.3 points, down 2.34%.

Below, we take a look at what’s dragging the miner’s shares along with the benchmark index.

Spot price of iron ore plummets

After spending the last couple of months hovering around the US$150 barrier, the iron ore spot price has dramatically fallen.

Courtesy of Trading Economics, the steel making ingredient is trading at US$136.50 per metric tonne as of last night. This represents a fall of almost 9% compared to Friday’s closing price.

The sharp decrease will have an impact on Fortescue’s bottom line, however, profits are still expected to be churned out. The company reported industry leading C1 costs of US$15.28 per wet metric tonne for H1 FY22. C1 costs refer to the ‘direct’ production costs incurred in mining and processing the iron ore.

China lockdown fears

Weighing down the market price for iron ore, and effectively Fortescue’s shares, has been China’s worsening COVID-19 situation.

The highly-transmissible Omicron variant has recently taken hold of Beijing, which is expected to lead to government restrictions.

This comes as China’s most populous city, Shanghai has been under severe lockdowns since the start of the month. Residents have been confined to their homes, and often protesting their frustration with the government’s strict zero-COVID policy.

The city has experienced major food shortages and delivery delays due to road closures and fewer delivery drivers.

Yesterday, China reported 3,266 symptomatic cases and 20,454 asymptomatic cases of COVID-19. The majority of these were recorded in Shanghai with 19,455 cases, and Beijing registered 19 cases, including 14 symptomatic.

It’s worth noting that with the economic conditions rife, the construction sector could potentially fall further. This would evitability have a profound impact on the demand for iron ore leading to a strong price drop.

Fortescue share price snapshot

Regardless of Fortescue shares being lower today, its shares have gained 10% since the start of 2022.

However, when looking further back, the company’s share price is down by 6% over the last 12 months.

Based on valuation metrics, Fortescue presides a market capitalisation of approximately $65.34 billion.

The post The Fortescue share price is falling 6% on Tuesday. Here’s why appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras 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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