Fortescue Metals Group Limited (ASX: FMG) shares have continued their climb today, up another 2%.
Headquartered in Perth, Fortescue is the fourth largest iron-ore producer in the world, up there with the likes of BHP Billiton Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO). They are now the lowest cost provider of iron ore to China and they continue to expand their operations into Japan, South Korea and India.
Performance
Fortescue shares are now up 125% over the last six months and more than 5% just this week. The share price is now a full dollar higher than previous all-time-highs and it doesn’t look like it’s stopping.
The reason for the price rise is, of course, iron ore prices, which reached multi-year highs yesterday. According to Business Insider, mid and lower grade ores closed at five-year highs while high-grade ores closed at two-year highs.
Why Iron Prices Are Rising
A major factor behind the increase in iron ore prices has been constricted supply from Brazil and Australia, two of the world’s largest iron ore exporters. A large dam collapse in Brazil in January had a significant impact on iron ore prices throughout January and February.
The gains in iron ore prices have also coincided with an increase in the price of Chinese steel futures.
The steel futures increased due to a seasonal upturn in demand and a pickup in Chinese construction activity. This helped to support iron prices as they reached multi-year highs.
Will The FMG Share Price Keep Rising?
Iron ore prices won’t keep rising forever. While there is a shortage in supply at the moment, a reduction in Chinese demand or an increase in Brazilian production following recovery from the dam collapse could see prices begin to ease off.
With both Fortescue and Rio Tinto Ltd (ASX: RIO) sitting at all-time-high share prices, it seems like a risky time to invest. This Rask Media article examines Rio Tinto shares and whether it can be justified by the dividends it pays.
Personally, I would avoid price-taking companies like Rio Tinto and Fortescue when they’re at all-time highs. I would rather invest in one of the companies mentioned in the free report below.
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
