BHP, Rio Tinto and FMG share prices all drop as iron ore prices fall

Certain things in the markets are unavoidable.

Warren Buffet once said that the first rule of investing was to never lose money. The second rule: don’t forget the first.

Of course Buffet didn’t mean this literally: avoiding any loss in the markets is near impossible.

So when iron ore prices were down 3.7% to US$80.1 per tonne (off the back of weak September Chinese iron ore import data) before the market opened today – those with exposure to the iron ore market likely knew Buffet’s first rule of investing was about to be breached – at least for a short while.

Ultimately, that was exactly what happened when the markets opened, with the big three Australian miners all seeing their share prices decline during today's trading session.

FMG, Rio Tinto and BHP share prices all lower

BHP and Rio Tinto, which are most comparable in operational terms, both saw their share prices fall modestly.

By the afternoon, BHP was down 0.62%, while Rio Tinto (ASX: RIO) was down a steeper 2.40%.

Yet it was FMG – ‘surprisingly’ at this point – that came away the most battered. By 15:43 AEST, the Fortescue Metals Group (ASX: FMG) share price had declined a significant 5.37% – to $9.08 per share.

Indeed, when iron ore prices first got hit in August, FMG saw its share price decline in step. But since then the stock has mostly de-coupled from the iron ore price – a truly fascinating development seeing as FMG is a pure play iron ore miner, opposed to the likes of Rio Tinto and BHP.

Specifically, since August – where iron ore bottomed out at around US$75 per tonne – and when FMG’s share price also declined – the general thought would be that FMG would also continue to suffer in step.

Yet this has not been the case, as iron ore prices remain volatile, FMG’s share price has risen more than 30%, is still up more than 100% YTD, the company has extended its share buy-back program and completed a sizable refinancing program.

Analysts seem just as uncertain of FMG’s future at this point. According to the Wall Street Journal the stock currently has a hold rating, with seven sell recommendations, eight hold recommendations and four buy recommendations.

Other thoughts on the iron ore market

Looking at the recent price action of the iron ore market, Deloitte’s Ian Sanders recently commented that:

‘Iron ore has had an extraordinary run in 2019, comfortably the best performing commodity in a volatile market reeling from trade wars and geopolitical disturbances.’

Mr Sanders however finished by saying that:

‘The near-term outlook for commodities, particularly industrial metals like copper is highly correlated with the trade situation.’

On that front, it's anyone's guess how the trade war, and if Mr Sanders is correct, the outlook for commodities, will play out at this point.

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