The Fortescue Metals Group Limited (ASX: FMG) share price is dropping today after a rapid decline in the iron ore price.
What’s happening to the Fortescue share price?
Fortescue shares are currently down around 3.7%. But, earlier today, the iron ore miner was actually up by around 1%.
What is going on?
According to reporting by Bloomberg, Chinese officials are stepping up their efforts to control the iron ore price.
Iron ore had reached $153 per tonne. That was the highest level that the market had seen for months. However, it has rapidly sunk to $144 per tonne. That’s still a high price, but a large drop for such a small amount of time.
According to reporting, Chinese regulators have been warning information providers against providing “false price disclosure”. These regulators disclosed that they summoned information providers recently and told them not to “fabricate” price hike information or drive up prices. They also vowed to “keep the market stable” with more effective measures.
As you can imagine, the market seems to be taking this as a warning that China isn’t happy with how high the iron ore price is going. Last year was a boom time for the profits of ASX miners, the Federal Government budget as well as strong cash flows for the WA Government.
What this means for the Fortescue share price
The iron ore price is a key factor for how much profit Fortescue can make (and then allocate to its green division, Fortescue Future Industries (FFI)).
Was $153 per tonne the highest level we’ll see in 2022? It’s hard to say. Chinese officials getting involved sent the iron ore price much lower over the second half of 2021.
However, once the winter (and Winter Olympics) ends in China, it’s possible that there could be a return to strong demand again. It’s also possible that China may put serious money into boosting its economy, with infrastructure spending a common strategy. But it’s also possible the iron ore price could fall below $100 per tonne. We’ll have to see what happens next!
Final thoughts
It’s no surprise to see the Fortescue share price rise and fall, as it somewhat matches the performance of iron ore.
I like the move by the miner to focus on finding higher grade iron ore mines. The Iron Bridge project is an important part of that. Diversification into African iron could also help. FFI has a compelling future.
I’m not looking to buy at today’s lower price. If the iron ore price falls substantially, then I’ll be having another look though.
