Stock of the day: Fortescue Metals Group

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This video was created on 3 September for IG audiences by ausbiz.

Stock of the day: Fortescue (ASX:FMG)

Iron ore prices dip below $100

Fortescue Metals Group has been under pressure as iron ore prices fell below $100 overnight, settling at $96.95. The price has dropped 23% since the beginning of 2024, driven primarily by weaker demand from China due to slowing economic activity. This decline has significantly impacted Australian mining stocks, with Fortescue's shares down 38% since early January.

China's economic outlook and its impact on iron ore

China's economic situation is a major concern. Recent reports from companies like A2 Milk, which are exposed to the Chinese market, highlight the pressures on the country. These pressures are also affecting the steel and iron ore prices. Fortescue is attempting to add value beyond just the spot price of iron ore by focusing on green steel initiatives. However, the performance of its stock is still largely dictated by iron ore prices.

China's property market issues and declining birth rate pose long-term challenges for iron ore demand. The short-term problem is China's property market, which has created a surplus of assets for a shrinking population. The longer-term concern is the forecasted decline in China’s population from 1.45 billion to 760 million by 2100.

Is this the bottom of the cycle?

Recently, one of Fortescue's largest shareholders, Capital Group, sold its entire stake. This was one of the largest block trades on the Australian market this year.

Analysts often suggest buying cyclical stocks at the bottom of the cycle. However, when the commodity prices are low, investors hesitate, fearing they could drop further. The big question now is whether we have reached the bottom of this cycle.