Fortescue Metals Up 10.6% As Chinese Interest Follows Iron Ore Recovery

Iron Ore prices have marked a recent recovery, gaining 7% over the past three days. The recovery comes after China’s weekly iron ore inventory levels hit its 52-week low on May 22, 2015.

The CIOITTAL Index, which tracks China’s iron ore inventory, fell to 7,671.00 on Friday, with each unit representing 10,000 tons of iron ore.

The recent gains of the Shanghai Stock Exchange Composite Index (SHCOMP) are also noteworthy, with the index surging 12% over the past six trading sessions. It marks the best run of the index since November 2008, after posting successive gains of 2% and 3.3% during the past two trading sessions.

The gains at the SHCOMP reflect improved market sentiment over copper and iron ore prices. The two commodities have been plagued with a supply glut over the past year.

China dominates the supply side of global iron ore markets. As Chinese iron ore levels surged last year, iron ore prices fell from its highs of around $135 per ton in January 2014 to its current levels of around $60 per ton.

On a related note, Australian iron ore producer Fortescue Metals Group Ltd. (OTCMKTS:FSUGY) traded up 10.60% in today’s trading session at the Australian Securities Exchange (ASX) over investment speculation from a potential foreign suitor.

As reported by the Fairfax press, the Foreign Investment Review Board (FIRB) has received multiple applications for permission to invest in Fortescue. While a takeover attempt has not been made, media reports indicate interest from Chinese investors in acquiring a stake in Fortescue. Among the interested parties are China’s state-run steel company, Shanghai Baosteel Group Corporation.

The interest in Fortescue comes despite a largely negative opinion from sell-side analysts. The company’s stock receives coverage from 25 analysts, with 11 of them giving it a Sell rating. Only four of the analysts suggest buying the stock, which has an average 12-month target price of AUD1.96. It implies a downside potential of 18% over the stock’s current price of AUD2.40.

Despite pessimistic view on the Street, Fortescue has attracted interest from Chinese investors, following the recent surge in iron ore prices. The company’s stock is down 48.72% over the past 12 months, which has made it cheaper for potential investors.

Receive News & Ratings Via Email - Enter your email address below to receive a concise daily summary of the latest news and analysts' ratings with our FREE daily email newsletter.