{"id":53477,"date":"2014-06-30T02:53:58","date_gmt":"2014-06-30T06:53:58","guid":{"rendered":"http:\/\/countingpips.com\/?p=53477"},"modified":"2014-06-30T02:53:58","modified_gmt":"2014-06-30T06:53:58","slug":"why-the-fortescue-metals-share-price-fell-today-2","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/06\/why-the-fortescue-metals-share-price-fell-today-2\/","title":{"rendered":"Why the Fortescue Metals Share Price Fell Today"},"content":{"rendered":"
June 30, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

What happened to the Fortescue Metal Group share price today?<\/h2>\n

\nShares of Fortescue Metal Group [ASX:FMG]<\/b> continued their volatile run, falling 4.40% today. Shares closed at $4.35 on Monday, virtually unchanged since this time last week. Given that the iron ore price has held over the US$90 level for over a week now, shareholders are becoming more confident and speculating where it might go next.\n<\/p>\n

Why did this happen to the Fortescue Metal Group share price?<\/h2>\n

\nFortescue Metals Group Ltd is an iron ore production and exploration company with assets located in the Pilbara region of Western Australia.<\/p>\n

Fortescue\u2019s share price has struggled recently, despite its plans to boost iron ore production by 35% in the next quarter. The company\u2019s share price has fallen by 30% since the beginning of this year.<\/p>\n

Fortescue is effectively a leveraged play on the iron ore price, which has fallen over 30% for the year to around US$94.90 per tonne. It\u2019s interesting to note that the (climbing) iron ore price is up from US$92.10 per tonne since last Monday.<\/p>\n

The issue is two-fold:<\/p>

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1)<\/strong>\u00a0\u00a0\u00a0 Fortescue has an extremely high cost of production. Analysis suggests that if the iron ore price falls below US$80 per tonne, Fortescue will be losing money.<\/p>\n

2)<\/strong>\u00a0\u00a0\u00a0 Fortescue\u2019s net debt (cash less debt) represents roughly 55% of its market capitalisation of around US$8.6 billion. This is very high.<\/p>\n

Further declines in the price of iron ore will squeeze Fortescue\u2019s profit margin, making it difficult for the miner to pay down its debt. This is probably what worries punters.\n<\/p>\n

What now for the Fortescue Metal Group?<\/h2>\n

\nFMG has recently reached its long-term ore production goal of 155 million tonnes per year, thanks to the completion of the Kings Valley project<\/a>.<\/p>\n

The stock remains at its major long term support level of $4.40. The share price needs to break and hold the $4.50 level for the next phase of the rally to commence. A strong share price bounce is only likely if the iron ore price becomes less volatile, whilst moving to higher prices.<\/p>\n

Fortescue\u2019s share price direction will depend on the iron ore price. At the current iron ore price, Fortescue will struggle to repay its debt. This indicates that Fortescue speculators may continue to hit the sell trigger in panic.<\/p>\n

Nonetheless, if iron ore rallies to around the US$115\u2013120 region, the share price could rise above the $6 level in the next few months as a result of increased production.\n<\/p>\n

Jason Stevenson+<\/a>
\n Resources Analyst, Diggers and Drillers<\/em><\/strong><\/p>\n<\/p>\n

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\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au What happened to the Fortescue Metal Group share price today? Shares of Fortescue Metal Group [ASX:FMG] continued their volatile run, falling 4.40% today. Shares closed at $4.35 on Monday, virtually unchanged since this time last week. Given that the iron ore price has held over the US$90 level for over a week now, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-53477","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/53477","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=53477"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/53477\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=53477"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=53477"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=53477"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}