China property slide bearish for iron plays

It’s been a tough year for Fortescue Metals Group shareholders, as they’ve seen the iron ore pure play lost 57% in value year-to-date.

Iron Ore
Source: Bloomberg

The stock price has been tracking the drop in iron ore prices, which have nearly halved this year and is expected to drift even lower in 2015.

Iron ore prices are pushing towards five-year lows and trading under $70 per tonne.

A further slide is expected with Australia’s Treasury expecting prices to drop and linger around the $60 in the ‘foreseeable future’. The slump will add even more pressure on Fortescue’s margins.

The company is also facing headwinds over demands. This has been to a large degree driven by China’s property slump where there are still no signs of a turnaround. The sector’s decline worsened with the latest reading from the property price index released yesterday. The contraction in overall property prices worsened, contracting for the third month in a row at -3.7% from the earlier drop at -2.6%.

The impact on Fortescue is particularly severe as over 90% of its revenue comes from China. Amid the bleak outlook, the company has halved its $US1.3 billion capital budget for spending on projects for the 2015 financial year.

On a daily chart, the stock is currently trading in a downwards channel. This suggests a negative bias and any rally to be an opportunity to sell. There is a potential support of $2.17, which is nearest to the low recorded in 2009.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.