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Date : 23/06/2022

Fortescue Metals Group (ASX: FMG) is down 5% after declining in the Iron Ore Prices

Fortescue Metals Group Limited (ASX: FMG) is an ASX-listed iron ore company. The company is the world’s fourth-largest producer of iron ore.

The company owns more than 87,000 square kilometres of land in Western Australia’s Pilbara area. The company has holdings of more than 87,000 square kilometres in the Pilbara region of West Australia. This makes the company the largest tenement holder in the state, more than Rio Tinto and BHP.

The company’s best attributes are innovation, culture, and industry-leading processes in developing mining assets and top-notch infrastructure. The business was established in 2003 and had its headquarters in Perth, Australia.

The recent decline in the global prices of iron ore has caused the FMG stock to shed 5% value in the intraday trading on Friday.

FMG: 1H22 Key Financials

FMG stock is currently trading at $18.60, with a decline of 5% at the closing of the trading session on Friday. The company has a market cap of around 55.27 Billion AUD.

FMG ASX

  1. Fortescue Metals’ revenue during the first half of 2022 was down 13%, coming in at $8.1 billion. Its revenue during the first half of 2021 was $9.3 billion.
  2. During the year’s first half, FMG’s NPAT saw a drop of 32%. 1H22 NPAT was $2.7 billion, much lower than 1H21’s revenue of $4.08 billion.
  3. The company’s earnings per share for the year’s first half were 90 cents, down from 133 cents in the previous year’s first half. In contrast to the last year, this represents a decrease of 32%.
  4. The firm had a cash position of US$2.9 billion in December 2021 and gross debt of US$4.6 billion due to the US$400 million drawn from the Term Loan Facility. This led to net debt of US$1.7 billion for the company. A final dividend of $4.7 billion was paid out to shareholders in the first half of 2022.

Iron Ore Prices

In March 2022, iron ore was trading at around US$149 per tonne, and its price was increasing.

But the current market price of iron ore is US$125.00, which is a three-week low price. As a result of which, the FMG stock lost around 5%. BHP stock lost 3.98%, and RIO stock lost approximately 4.68% on Friday’s close.

Iron ore has price has lost around 4.94% in a single day, and in the last 12 months, it has lost 42.53% in value.

FMG: China’s Plans for Iron Ore

There is news surrounding the market that China wants to secure cheap iron ore through a domestic central buyer. It has raised concerns among the majority of the investors.

According to the report by Financial Times, the Xi government wants to make it easier for the country to import iron ore by creating a new entity.

China is the largest consumer of iron ore globally. It requires around 1 billion tonnes to fulfil its industry needs. Australian iron ore accounts for about 70% of the world’s iron ore imports to Asia.

If they decide to import iron ore from Australia, it will create an imbalance in the global pricing power.

It is possible that the Chinese government may not have the capacity or willpower to impose such regulations on small businesses to participate in the initiative.

Conclusion

The current decline in iron ore prices is adversely affecting the share prices of iron ore companies on the ASX and other financial markets globally. If China reduced its dependency on Australian iron ore exports, it would disrupt prices, and iron ore could lose value in the future, eventually affecting the ASX iron ore companies.

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