The Fortescue Metals Group Ltd (ASX: FMG) share price fell almost 7% today.
Why?
The price difference between premium iron ore (65% fines) and lower grade (58% fines) is at the lowest level in more than two years on the back of supply concerns, so why are Fortescue shares falling?
Vale SA To Close A Mine Or Re-Open A Mine?
This week, a local court in Brazil ordered the world’s largest iron ore producer, Vale SA, to stop production at its Timbopeba mine over safety concerns, following on from the Brumadinho dam accident on 25 January which left more than 300 people dead. The Timbopeba mine has an estimated production of 13 million tonnes per annum (mtpa).
However, Vale said a local court in Brazil had given it permission to resume its operations at the Brucutu mine, which has an estimated capacity of about 30mtpa of iron ore, or around 8% of Vale’s annual output. Meaning, some iron ore production was removed from the global market, but more was added.
Efficient Market In Action
The Fortescue share price reached a two year high yesterday, reflecting the news that Vale’s Timbopeba mine would be shut. However, on Wednesday, Fortescue’s share price movement seems to have reflected the news from Brazil on Tuesday (overnight Australian time) of Vale being set to re-open a different mine.
Go figure!
This only serves to remind me of how cyclical and volatile mining shares like Fortescue can be. I’d rather look to other industries for investment growth.
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Disclaimer: At the time of writing, Andrew does not own shares in any of the companies mentioned.
