Fortescue share price rebounds on possible China supply restrictions

Three miners stand together at a mine site studying documents with equipment in the backgroundThree miners stand together at a mine site studying documents with equipment in the background

The Fortescue Metals Group Limited (ASX: FMG) share price increased almost 3% today amid news out of China.

Fortescue shares closed at $21.40 apiece on Tuesday, up 2.84%. That was well above the S&P/ASX 200 Index‘s (ASX: XJO) gain of 0.47%.

As one of the world’s biggest iron ore miners, sentiment about the company is susceptible to changes in the iron ore price. In turn, this can be impacted by changes in the relationship between supply and demand, or even the perceived future changes.

China is the key buyer of iron ore globally, so anything happening within the borders of the Asian superpower can have a large impact on the Fortescue share price.

What’s happening in China?

According to reporting by the Australian Financial Review, China is focusing more stringently on environmental impacts and regulations once again.

The AFR reported that China’s leading lithium production hub, known as Yichun, was ordered to “halt output” as investigators probed alleged environmental infringements at lithium mines, according to Bloomberg. This accounts for between 8% to 13% of global lithium supply.

The newspaper also reported that iron prices dropped after Chinese authorities ordered steel output to be reduced at the Tangshan production hub with forecasts of “heavy air pollution”. Lower production of steel could mean that iron ore demand falls.

Is this going to happen more regularly?

Senior commodity strategist at ANZ Group Holdings Ltd (ASX: ANZ) Daniel Hynes was quoted by the AFR:

Traders in the lithium market are becoming increasingly concerned about a supply shock.

It does appear that Beijing is re-focusing on environmental issues again following a period of weak industrial activity due to COVID lockdowns. With China’s reopening now ramping up, though, these crackdowns are likely to become more common.

The iron ore price dropped 3% overnight to US$122 per tonne.

Why is the Fortescue share price rising?

Sometimes the market movements of shares don’t quite make sense.

Keep in mind that the 3% rise in the Fortescue share price today follows the 7% fall on Monday after the company went ex-dividend. Going ex-dividend means new investors are no longer entitled to the announced dividend.

The Fortescue dividend that’s going to be paid to shareholders is 75 cents per share. That payment is due on 29 March 2023.

So, over the two days, the Fortescue share price has dropped 4.6%.

Also, it’s worth keeping in mind that Fortescue is investing billions of dollars into decarbonising its business. That could mean that its ‘green’ iron is more likely to tick the box for Chinese authorities and may end up being worth more of a premium than if it wasn’t ‘green’.

The post Fortescue share price rebounds on possible China supply restrictions appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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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