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.

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