The Fortescue Metals Group Limited (ASX: FMG) share price has fallen on difficult times recently.
The world’s fourth largest iron ore miner’s shares have come under pressure amid the plunging price for the steel-making ingredient.
At Wednesday’s market close, Fortescue shares ended the day 2.38% lower to $20.12. This means that its shares are now down 8% for the past three trading days.
What’s going on with iron ore prices?
The drop of iron ore prices over the past week is providing a strong resistance to the resources industry.
As COVID-19 continues to spread throughout China, there are fears that the government may enforce a wider lockdown.
Iron ore prices have sunk almost 5% since this time last Wednesday to trade at US$144.08 per tonne.
It is expected that there will be a reduction in demand from Chinese steel mills in the next few months. This is because the construction sector has been heavily affected by the government’s strict zero-COVID policy.
The property and infrastructure industry makes up roughly 60% of China’s steel needs.
What does this mean for Fortescue?
The sharp decrease will no doubt have an impact on Fortescue’s bottom line; however, profits are still expected to be churned out.
In its March quarterly trading update, Fortescue reported record year to date iron ore shipments of 46.5 million tonnes. Coupled with its industry-leading C1 costs of US$15.78 per wet metric tonne, this still translates to bumper profits.
The company is forecasting an upgraded shipments guidance of 185 million tonnes to 188 million tonnes for FY22.
C1 costs are expected to slightly rise between US$15.75 and US$16 per wet metric tonne due to inflationary costs.
Only time will tell if Fortescue can achieve the above guidance, despite its strong dependence on the Chinese market. If it does miss the mark however, then its shares could tumble significantly further.
What do the brokers think?
Following the trading update, a couple of brokers rated the company’s shares with varying price points.
The team at UBS raised its 12-month price target by 9.4% to $18.70 for Fortescue shares.
However, Goldman Sachs had a more bearish tone, slashing its rating by 2% to $14.90 apiece. Based on the current share price, this implies a potential downside of almost 26% for investors.
Fortescue share price summary
It has been a rollercoaster ride for Fortescue investors, with its shares reaching all-time highs before sinking near 52-week lows.
Over the last 12 months, the company’s share price is down 11%, with year to date up almost 5%.
Fortescue has a market capitalisation of around $61.95 billion and approximately 3.08 billion shares on its books.
The post The Fortescue share price is down 8% in May. Is now the time to buy? appeared first on The Motley Fool Australia.
Should you invest $1,000 in Fortescue right now?
Before you consider Fortescue, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Fortescue wasn’t one of them.
The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of January 13th 2022
- ASX 200 mining shares slump, dragging index into the red
- Leading brokers name 3 ASX shares to sell today
- Why is the Fortescue share price down 5% on Tuesday?
- Here’s how some of the biggest ASX 200 shares are responding to the RBA’s rate rise
- How did the Fortescue share price stack up in April?
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.
from The Motley Fool Australia https://ift.tt/UPxXDt4