Here’s why the Fortescue share price is falling 6% into the dirt today

Female miner standing next to a haul truck in a large mining operation.

Female miner standing next to a haul truck in a large mining operation.

The Fortescue Metals Group Limited (ASX: FMG) share price is taking a beating today.

Fortescue shares closed yesterday at $17.41 and are currently trading for $16.43, down 5.6% after earlier posting losses of more than 6%.

That’s significantly more than the 1.5% loss posted by the S&P/ASX 200 Index (ASX: XJO) at this same time.

But it’s not just the Fortescue share price that’s underperforming today.

Rival ASX 200 miner BHP Group Ltd (ASX: BHP) shares are down 3.9%, and the Rio Tinto Limited (ASX: RIO) share price has also dropped 3.2%.

So, what’s going on?

Rising costs and falling prices

The Fortescue share price and shares of the other top iron ore focused miners look to be taking a hit on two fronts.

First, iron ore fell another 8.4% overnight, to just over US$100 per tonne. The industrial metal has been on a downward trend over the past 12 months. This time last year it was still fetching some US$220 per tonne.

While there are a few factors pressuring iron ore prices, a slowing Chinese economy is chief among them. The second biggest economy in the world also has the most voracious appetite for imported iron ore for its massive property and infrastructure projects.

But investors are worried that Chinese demand could fall significantly amid an already struggling economy that’s once again being hamstrung by COVID-19 lockdowns.

A poll of 50 economists conducted by Reuters indicates the Chinese economy only grew a tepid 1% in the April to June quarter from the previous year.

According to Nie Wen, an economist at Hwabao Trust:

The second-quarter GDP took another hit from COVID after 2020, although the downturn may not be as sharp as before. Going forward, the pace of recovery will not be as strong as in 2020 due to the lingering impact from COVID curbs, and exports and the property sector could be affected by external and internal factors.

That covers the falling prices dragging on the Fortescue share price today.

As for rising costs, investors may be tuning in to the cost warning reported by Rio this morning in the miner’s quarterly update.

As my Foolish colleague James Mickleboro reported:

[Rio] warned that higher rates of inflation have increased its closure liabilities and impacted its underlying earnings. In the first half, this resulted in increased charges of approximately US$400 million pre-tax within underlying earnings compared with the first half of 2021, including a US$300 million increase in amortisation of discount, with the remainder impacting underlying EBITDA.

Fortescue share price snapshot

With today’s falls factored in, the Fortescue share price is down 17% in 2022, trailing the 14% year-to-date losses posted by the ASX 200.

Longer-term, Fortescue shares are up an impressive 227% over five years.

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

“The worst thing you can do is nothing”

Motley Fool Chief Investment Officer says right now is not the time to sit on your hands…
As inflation eats away at cash balances Scott Phillips reveals three stocks for investors to consider that could help fight rising prices…
… And Fortescue Metals Group Limited isn’t one of them.

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Motley Fool contributor Bernd Struben 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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