By building a business so heavily exposed to iron ore, Twiggy Forrest’s Fortescue Metals Group is wide open to commodity price fluctuations.
It’s hard to find a better example of this than today’s market action.
Driven down by the surprising trade deficit posted by China over the weekend, the iron ore price has dropped two per cent to $US114.20 a tonne, its lowest level since June last year.
With the majority of Australia’s iron ore being shipped into China for use in the country’s expanding construction sector, any contraction or uncertainty there has a direct impact on miner’s share prices.
The latest bout of uncertainty is coming from the Chinese government and state run banks which are considering curbing lending to the property market and cutting steel capacity.
Today Fortescue shares finished more than 9% at $4.92.
In February the iron ore miner’s shares rose above $6 for the first time since April 2012 but have been falling largely in line with the iron ore price since.
The stock has been a favourite short of US investment manager Jim Chanos, who has long argued that capacity will grow while Chinese demand moderates.
Other iron ore players are also feeling the pinch with both Arrium and Atlas Iron shares closing more than 10% lower.
Diversified majors BHP Billiton and Rio Tinto also fell on the back of the news. BHP was down 4.14% to $36.16 and Rio shed 5.76% to $61.20.
The price of iron ore has continued to fall steadily since January and some analysts remain unconvinced China will achieve its 7.5 per cent growth target which means there could be more pain to come.