Fortescue is facing increasing scrutiny from hedge funds as the mining giant encounters mounting pressure from Beijing’s iron ore buyer, China Mineral Resources Group (CMRG). Fortescue is the world’s fourth-largest producer of iron ore, a key steel-making ingredient. Short positions have been building in its stock amidst reports CMRG is co-ordinating with traders, steel mills, and port operators to delay Fortescue cargo, limit purchases, and discourage new buying. This comes after the two sides reached an impasse over supply contracts. The amount of Fortescue shares held by short sellers has surged from 1.9 per cent in mid-June to 2.8 per cent, marking its highest level in at least three years.
This trend extends beyond Fortescue, with short sellers also ramping up bets against larger iron ore rivals Rio Tinto and BHP as the commodity trades below US$100 a tonne. Ten Cap’s Jun Bei Liu, who recently flipped her position on Fortescue to a short, cited concerns about softening iron ore prices and stalled negotiations with Beijing. Liu suggested China’s clear desire for a better deal would lead to lower iron ore prices, disproportionately impacting Fortescue due to its lack of diversification. Sage Capital echoed these sentiments, also shorting bulk miners amidst record iron ore inventories at Chinese ports and contracting steel demand.
Iron ore prices, which traded above US$112 a tonne in mid-May, have since tumbled almost 14 per cent to US$97.10 a tonne. This decline is attributed to rising output from Australia and Brazil, the ramp-up of Rio Tinto’s Simandou project, and high imported iron ore inventories at Chinese ports, totalling 170 million tonnes. Fortescue’s billionaire founder, Andrew Forrest, recently urged China and Australia to “always negotiate fairly,” emphasising their mutual need for the iron ore trade. These market shifts have already impacted share prices, with Rio down 19 per cent, BHP down 11 per cent, and Fortescue falling more than 18 per cent from recent highs.
