FMG share price stumbles as commodity prices ‘collapse’

The iron ore price in focus

Fortescue Metals Group Ltd (ASX: FMG) today saw its share price decline by 3.42% – to $11.00 per share – as Chinese commodity prices collapsed.

Indeed, as Bloomberg reported a little after noon:

‘The country’s three major commodity exchanges were hit by an unprecedented bout of selling as they reopened with Chinese traders getting their first opportunity to catch up with losses inflicted on overseas markets while they had been on holiday.’

Iron ore, oil and copper were the most impacted.

Bloomberg further reported that iron ore prices fell to their lowest levels since December today, hitting an intraday low of 603.5 yuan per tonne in Dalian.

Taking a broader view, Citibank is cited to have said that iron ore prices could drop as low as US$70 per tonne – noting that the current coronavirus situation has ‘drastically shifted’ the current growth outlook – both in China and globally.

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FMG share price: highs and lows

Overall, Fortescue’s (ASX: FMG) share price pull-back comes after the pure-play miner reported record quarterly production results last week.

Here, the $33.87 billion iron ore giant reported Q2 shipments of 46.4 million tonnes, average iron ore revenues of US$76 per dry metric tonne and lower C1 costs of US$12.54 per wet metric tonne.

In response to those results, FMG’s CEO – Elizabeth Gaines – said:

'Once again, the Fortescue team has achieved outstanding results demonstrated by multiple records across the operations [...] while maintaining our industry leading cost position.'

Record results or not, the stock fell in response to those production figures, trading at the $11.20 mark the morning of their release.

The FMG share price trades even lower now, currently sitting at $11.00 per share.

Brokers remain uncertain

The broker view on FMG remains a decisively mixed one: with some expecting modest upside from current levels, while others anticipate a radical pull-back.

Macquarie Wealth Management, for example, have retained their Outperform rating and cited a 12-month share price target of $12.80 per share on FMG.

Here the investment bank noted that Fortescue:

‘Is trading on an attractive free cash flow yield of 13% for FY20 and retains material upside to our medium-term forecasts at spot prices.’

Credit Suisse, by comparison has remained uninspired by FMG’s prospects following the company's Q2 production results, rating the stock a ‘boring Neutral.'

The investment bank currently has a 12-month share price target of $11.00 on FMG.

Looking at two schools of thought on the stock, however, Credit Suisse argued that:

‘Those not willing to chase at these levels will point to (perhaps) stretched NPVs, whereas those happy to hold/buy will highlight the dividend capacity that exists.’

Morgan Stanley remains underweight FMG, with a 12-month price target of $8.00 per share on the miner.

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