The most likely catalyst for the drop can be linked to the broad weakness in the iron ore price over the week. Looking at today’s current price action, the spot price for iron ore is down 1.49% to US$92.19 per tonne, at the time of writing.
Fortescue Metals Group Ltd shares continue to fall, amidst broad weaknesses in iron ore prices (Source: Dominik Vanyi)
After the steep drop in iron ore prices on January 9, MMi provided Market Commentary to traders, investors and speculators through their Daily Iron Ore Index Report the following day. In the report MMi accounted for the main reason behind the decline as well as a potential insight into the following week’s market action.
MMi wrote that:
Mill demand plummeted as the DCE iron ore futures market dove during the morning session. Some traders indicated they were more willing to negotiate, but concluded deals were relatively few.
Looking towards next week, it was also pointed out that:
Although demand fell sharply, some traders were relatively firm on their quotes for medium grade products given the expected supply tightness and some unfinished restocking expected next week.
However, in terms of the outlook for iron ore, a number of well-respected sources have provided concerning predictions. Among these sources, Westpac economists think iron ore will hit US$65 per tonne by the end of 2020; while NAB is slightly more positive, believing it will drop to US$68 per tonne by the end of CY20.
In saying that, Fortescue Metals Group (ASX: FMG) has continued to pursue a shareholder friendly agenda, recently reducing its debt load and refinancing its debt obligations.
CEO, Elizabeth Gaines reporting that the actions will:
Reduce annual interest costs, flatten the repayment profile and extend maturities to 2027 while maintaining our balance sheet structure on investment grade terms and conditions.
The company also announced that it had extended its previously announced share buy-back program to October 10, 2020.
Furthermore, amidst these shareholder friendly actions the company has also maintained positive first quarter production results and an internal strong start to 2020 with a 5% YoY increase in iron ore shipments and an 89% YoY increase in average revenue.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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