Fortescue Metals Shares Rally as Iron Ore Makes a Comeback

What happened to the Fortescue share price?

Fortescue Metals Group Ltd [ASX:FMG] traded up as much as 5.2% on Friday, to a high of $5.22 per share.

FMG is a volatile stock. It’s volatile because the price of iron ore is volatile. A lot of our iron ore goes to China, which turns it into steel to continue its infrastructure boom.

So depending upon how much China builds or what their stockpiles look like, it will be reflected in the price of iron ore.

Why did this happen to FMG shares?

According to Business Insider Australia, iron ore has a real possibility of rebounding.

Steel inventories in China are well below normal and steel mill margins are increasing again.

And that means that the recent rebound in iron ore spot markets may have further to run, says Vivek Dhar, mining and energy commodities analyst at Commonwealth Bank.

And it’s not just Commonwealth Bank of Australia Ltd [ASX:CBA] that thinks iron ore could be coming back. Credit Suisse is also of the opinion that iron ore will rebound over the coming months. So while it may or may not be right, its predictions have boosted confidence in iron ore miners like FMG.

What now for Fortescue Metals Group Ltd?

If you are thinking about buying FMG shares, be aware of the risks.

While analysts are predicting an iron ore rebound, who’s to say the commodity won’t drop further? The volatility of iron ore might cause you to lose countless nights of sleep. If you think this will be you, stay away from commodity businesses.

However, if you’re bullish on iron ore and believe FMG is a good investment idea, then stick to your guns and ride the volatility. If you have a long-term perspective, you won’t listen to the noise of the market and could potentially gain triple returns while sitting on your investment.


Härje Ronngard,
Junior Analyst, Money Morning

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