Fortescue Metals (FMG) has had a wild ride over the past 10 weeks as its share price collapsed to a low of $1.44 before rallying 128% to last week’s high of $3.29.
That price action screamed short covering as news broke of the FMG-Vale tie up driving the price to the highs. But when the full details broke, the spike had the inevitable consequence of the FMG share price falling sharply to close the week at $2.65, down around 18%.
As incredible as that price action seems James Woods, Global Investment Analyst at Rivkin Securities, points out that even with all this volatility the real driver of FMG is just the wild ride iron ore itself has been on in 2016. It’s not surprising that a monoline business like FMG would have it’s share price tied to movements of the value of its underlying product.
But Woods points out just how much tighter this relationship has become this year than in the past. Here’s his chart: