Why is the Fortescue share price down 5% on Tuesday?

Miner standing at quarry looking upsetMiner standing at quarry looking upset

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 at $20.67, down 4.53%.

In comparison, the S&P/ASX 200 Index (ASX: XJO) is also treading lower to 7,308.3 points, down 0.53%.

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

Iron ore prices plummet

After spending the last couple of months hovering around the US$150 barrier, iron ore prices have continued to fall.

According to Trading Economics, the steel making ingredient is trading at US$142 per metric tonne as of last night. This represents a decline of 5.26% compared to this time last week.

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’s heavy-handed lockdown

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

The government has amplified its already harsh restrictions on Chinese residents to achieve its strict zero-COVID policy.

Repeat testing as well as barring access to public places without a negative result has been initiated in the capital of Beijing.

China is seeking to limit the spread and the chaos that ensued in its most populous city, Shanghai.

It’s worth noting that with the economic conditions rife, the construction sector has been hampered. This has led to the shrinking price of iron ore as demand wanes.

RBA increases rates

Another factor playing again Fortescue is the Reserve Bank of Australia (RBA) lifting its official cash rate by 0.25% today.

Notably, this is the first time the RBA has increased its rates since the Julia Gillard era in November 2010.

With the official cash rate now at 0.35%, which has pushed the ASX deeper in the red during afternoon trade.

The RBA is using its tools to curb inflation which has risen 5.1% on an annualised basis.

Fortescue share price snapshot

Regardless of Fortescue shares being lower today, its shares have gained 8% since the start of 2022.

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

The post Why is the Fortescue share price down 5% on Tuesday? 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 Scott Phillips.

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