The Fortescue Metals Group Limited (ASX: FMG) share price has fallen 44% since 29 July 2021. Could this make it a screaming buying opportunity?
What’s going on with the Fortescue share price?
It’s a bloodbath for iron ore miners at the moment. Over the last five days Fortescue has fallen around 20%.
The iron ore price has been sinking like a stone. Not only has been falling since August as China sought to slow steel production, but there is major investor concern about Evergrande, which is a very large property developer in China and a huge user of steel/iron.
Evergrande is having financial problems and may be heading towards default. Whether it goes bust is anyone’s guess, but investors don’t seem to be waiting to find out. There is a huge amount of debt on the property developer’s balance sheet and there is a lot of Chinese people’s money tied up in the business and with the properties. There are apparently more than a million home buyers linked to it as well as 3.8 million jobs.
If Evergrande does go under, then a large user of Australia’s iron ore may disappear. But a new player could emerge. Sometimes investors and the market can become overly bearish. Just like conditions may have been too bullish before. Australia’s nuclear subs may also be a problem for iron ore.
Is there an opportunity here?
When you look at the Fortescue share price compared to a year ago, it’s down by less than 10%. The BHP Group Ltd (ASX: BHP) and Rio Tinto Limited
(ASX: RIO) share prices are fairly similar to 12 months ago. I wouldn’t describe them as super cheap yet, at this stage.
I have been saying for a while now that it doesn’t make sense to buy iron ore miners near the top of the cycle. The price is certainly no longer near the top. But the iron ore price and share prices could keep falling – you’d need a crystal ball to truly know.
However, after such a strong decline, and a lot of uncertainty priced in, I think taking a measured approach to the miners could be appropriate if one has been thinking about them for a while.
The crashes are usually the opportunistic time to think about shares, but it’s hard to be brave when there are heavy falls.
When Rask’s trading rules allow, I may decide to ‘buy the dip’ on this one, particularly if iron ore goes below US$90 per tonne. I like the green initiatives that Fortescue Future Industries (FFI) is doing and this lower Fortescue share price could present a long-term opportunity. However, volatility is very likely and further falls are possible, so I’d split my investing into multiple purchases.
