Why is the Fortescue share price sliding on Tuesday?

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.

The Fortescue Metals Group Limited (ASX: FMG) share price is down 2.44% in early trading on Tuesday. This is despite the price of iron ore rising 1.28% overnight to US$119 per tonne.

There have been significant fluctuations in the iron ore price of late. It has fallen in a jagged line from US$158 per tonne in March to US$100 per tonne on 21 July. The commodity has rebounded ever since.

The health of the Chinese economy and its steel and construction industries are very influential on the iron ore price. This is because China buys more iron ore than any other country. In fact, China accounts for 70% of the world’s total global iron ore imports by value, according to Statista.

Why has the Fortescue share price been volatile?

The Fortescue share price is arguably more sensitive to any news about China’s economy compared to other ASX mining shares. This is because it is a pure-play iron ore producer.

Fortescue shares are down 7% in the year to date. This compares to a 2.5% dip for Rio Tinto Limited (ASX: RIO) and a 4% gain for BHP Group Ltd (ASX: BHP).

According to the Australian Financial Review (AFR) today, Liberum Capital has issued a note saying China’s steel industry “is in sharp contraction on all fronts”.

According to the note:

China’s steel industry is in sharp contraction on all fronts, responding to collapsing domestic demand. Persistent data weakness has prompted our Restocking Indicator to report its fourth sell signal in a row, despite falls in output.

Finished goods inventories remain too high, which should trigger further destocking.

China’s on-going series of government-backed bailouts of unfinished housing projects has yet to convince stakeholders that we have arrived at the lows of this downcycle.

[The] market clearly doesn’t believe that the proposed bailouts are sufficient to offset weakness, with high yield bonds still trading at their very lows.

Liberum Capital said there was a renewed downturn in property sales in China in July. Sales were down 40% year over year among China’s top 100 property developers.

Liberum Capital said it maintains its sell recommendations on BHP, Rio Tinto, and Antofagasta plc.

The BHP share price is also down this morning by 1.82%. The Rio Tinto share price is also in the red by 1.68%.

Fortescue CEO Elizabeth Gaines presented at the annual Diggers & Dealers Mining Forum this morning.

The post Why is the Fortescue share price sliding on Tuesday? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in BHP Billiton Limited and Fortescue Metals Group Limited. 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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