Revisiting Iron Ore: Is it Really Doomed?

Today, we’re going to revisit one of the important bellwether stocks on the ASX, Fortescue Metals [ASX: FMG], to try and unpack what it tells us about the iron ore market.

Here’s a brief background on the company’s recent freefall: FMG shares are down around 30% in 2026, or about 50% since their peak in January 2024.

That’s a mammoth slide for one of Australia’s largest companies and former darlings of the last mining boom.

What’s driving the sell-off?

One of the key concerns: Chinese mills continue to produce more steel than anybody needs. And given they operate on razor-thin margins, there’s little appetite to pay more for Australia’s iron ore.

That’s the headline dilemma weighing on FMG’s outlook.  

Meanwhile, China’s Mineral Resources Group (CMRG), Beijing’s central buying agency, has urged mills to curb deliveries from major Australian miners while it negotiates pricing.

Earlier this year, BHP was in the same dilemma as CMRG attempted to force a deal with the major miner. The stand-off lasted months before an agreement was finally settled in April.

But now CMRG is shifting its focus to FMG, flexing its dominant role as a major buying force and seeking to strike more favourable terms.

No doubt, the timing of West Africa’s Simandou Mine coming online is giving CRMG greater negotiating power to push improved terms against Australian miners. And to drive that point home, CRMG instructed Chinese mills not to take delivery of certain FMG products in recent weeks.

All of these headwinds are having a material impact on Fortescue’s performance.

But are we close to peak pessimism?

The key point here is that a deal will eventually be struck between FMG and China’s largest iron ore buyer. Just as it was with BHP.

And once that hurdle is cleared, there will be far greater certainty underlying FMG’s outlook.

But what about the steel glut?

While the mainstream media has been extremely bearish on iron ore, I’ve been looking at it differently…

Prices have been remarkably resilient over the past two years.

As you can see, iron ore has traded within a narrow band of very low volatility over the past two years, between about $106 and $90:

Iron ore price, US$ per dry metric tonne
Source: Trading Economics

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Traders would identify this as a basing pattern, a low-volatility period, marked by little price fluctuation. Importantly, this can become the foundation for a strong future price rally.

Fundamentally, it signals that strong buying power is coming in at around $90, signalling that the market is a welcome buyer at these low levels. That should be viewed as a positive.

In fact, iron ore’s price action marries up well with FMG. As you can see below, FMG is hovering near its major long-term support level, at around $13.20, which has in the past sparked strong rallies.

Again, a critical support area that marks the 2008 share price peak and the breakout zone the stock cleared in 2020, which I’ve annotated below:

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Old resistance has become support

While it doesn’t guarantee a rally, it does signal a potential turning point for FMG. As an investor looking to ride that potential move, you could buy around this level but place a tight stop-loss just below, in the event the move fails to materialise.

That’s what I’ve done for my super account. Let’s see how it plays out!

Until next time.