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Why has the Anglo American share price crashed by 25%?

Stack of British pound coins falling on list of share prices
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Multi-commodity miner Anglo American (LSE: AAL) is the biggest FTSE 100 loser as I write. Its share price is down by 6%. This is most certainly on account of the general market weakness seen today. From Asia to Europe, stock markets have traded weak. But the miner has been weakening much longer time now. Over the past month, its share price has slipped a huge 25%!

What’s going on here?

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Crashing prices for iron ore

Two developments have taken place in the past month. The first is the crashing price of iron ore, which has almost halved since the highs of early July. Even though Anglo American produces a number of commodities, iron ore was the biggest contributor to its profits for the six months ending 30 June. It accounted for over 40% of its earnings. Also, earnings from the metal more than doubled over the past year. 

A big reason for the rise in iron ore prices was China’s stimulus, that encouraged infrastructure development in the country. However, this is now being withdrawn. Possibly because of this, the economy’s growth rate is also slowing down. And its second biggest property developer, Evergrande, which has taken massive loans from banks, is in financial trouble. This could have implications for not just China, but the global economy and stock markets. 

These developments are bad news for the likes of Anglo American, which along with Ferrexpo, a FTSE 250 iron ore producer, has seen a share price crash. Much of this has been seen in the past week.

Similarly, platinum group metals, prices of which move in tandem, have been falling since May this year. This segment is the second biggest contributor to the company’s earnings, with a share of 36% as per the latest numbers. 

Anglo American goes ex-dividend

The second reason for this FTSE 100 stock’s fall was far more technical. Its share price crashed in the third week of August when Anglo American shares went ex-dividend. Ex-dividend refers to the cut off date that determines which shareholders get paid the next dividend and which do not. If I had bought its shares before the date, I would be eligible for dividends. Also, if I sell my holdings after the ex-dividend date, I am still eligible to the dividend payout. So it follows that a stock’s demand declines on such a date. 

The stock’s price started inching up soon after this date. However, uncertainty about iron ore prices and commodities in general has impacted it since. 

Would I buy this FTSE 100 share?

I am not pessimistic about Anglo American prospects, though. In fact, I bought its shares quite recently. Even though iron ore prices could decline, they could also stay elevated instead of crashing much more from current levels. Moreover, with huge infrastructure spending planned by the US and a revival in the global economy, I am still quite bullish on its fortunes. For this reason, I still think this is a good time to load up on the stock for my portfolio, which has fallen quite a bit.

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Manika Premsingh owns shares in Anglo American and Ferrexpo in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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