Why Fortescue Metals Group’s Share Price is Down

At the time of writing, shares of Fortescue Metals Group Limited [ASX:FMG] are down by 1.09% for the day, to $4.53 per share.

Why Fortescue Metals Group’s share price Moves lower

Fortescue Metals Group is considered a large-cap company and tends to move with the overall market. But that hasn’t been the case lately. The ASX 200 experienced a three-month correction to hit a low of 5,410 points in December, whereas FMG held up relatively well over that time (more details below). The ASX 200 is currently trading lower today, down by 13.7 points to 5,760.9 points:

Fortescue Metals Group’s Share Price
Source: CommSec

It was a much-needed correction for the market. That said, momentum seems to have shifted in mid-December. The market has bounced 400 points following its low, which spelt good news for Fortescue Metals Group:

Fortescue Metals Group’s Share Price
Source: CommSec

Fortescue Metals Group has outperformed the market since early September. That said, with the market’s latest move higher, the company’s share price has skyrocketed. That should be expected, mind you. Companies that tends to outperform market downturns also tend to rally the strongest when conditions change for the better.

That said, considering the strong run-up this month, Fortescue Metals Group’s share price has seen a small pullback today.

 Fortescue Metals 2019 forecast

I believe Fortescue Metals Group offers one of the best opportunities going around the resources sector today. That said, considering the strong share price move, we might see a slight pullback towards the $4.20 level in the days ahead.

Let’s take a look at the iron ore price ― the main contributor to Fortescue Metals Group’s earnings:

Fortescue Metals Group’s Share PriceSource: tradingview.com

The iron ore price has risen considerably in the last few months; albeit, it has been volatile over the last month. That’s possibly why FMG’s share price was higher into year’s end, given the reasonably weak market environment. In that case, given iron ore is the main source of Fortescue Metals Group’s revenue, a rising iron ore price is positive for the company.

The iron ore price appears to be moving towards the US$76–78 per tonne level. If that happens and the ASX 200 starts turning around with more velocity, Fortescue Metals Group could see a sharp bounce towards that $5 price level.

The bottom line: Fortescue Metals Group’s future is mainly dependent on the overall market, rather than the iron ore price. Despite that, the iron ore price is helping the company outperform the market. Pay close attention to the share price: we could see a short covering rally with the iron ore price to $5 per share, if the market starts to reverse sharply higher soon.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money

 

 


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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