Andrew Forrest has dramatically raised his stake in Fortescue Metals Group, as iron ore prices plunge below a critical threshold and cause share prices to flounder.

ASX filings indicate that Andrew Forrest, chairman and ex-CEO of Fortescue Metals Group, bought one million shares in the iron ore miner last week for around $4.9 million, at an average price of $4.93 per share.

During the several day period that when purchases were made Fortescue shares fell around 11.9 per cent, as a result of declines in iron ore prices triggered by worrisome economic news from key export market China.

This included surprisingly weak export data for the Asian giant, indications from Beijing that average economic growth levels could slide fall below 7.5 per cent, as well as confirmation that a slew of Chinese steel mills would be shut this year.

Concerns about the Chinese economy spurred the largest single-day decline for iron ore in over four years during the period that the purchases were made, dragging prices to below the USD$105  threshold to hit USD$104.7 at their lowest point.

The purchase is in line with Forrest’s pattern of transactions in the past, which have seen him ramp up his holdings during slumps in the company’s share price.

The spate of sharp declines have seen iron ore prices per tonne continue to languish just below the USD$110 level – only the second time since 2009 that they’re sunk to such a low.

Member of Australia’s iron ore sector have put on a brave face however, with Rio Tinto CEO Sam Walsh pointing out that China’s steel industry continues to suffer from overcapacity which Beijing has long sought to remedy.

Atlas Iron head Ken Brinsden said that the Chinese market suffers from a “gross undersupply” of iron ore, which has been supported by high-cost domestic mining, boding well for plans by Australian miners to massively raise output levels soon.

China-based analysts also point out that the dive in iron ore prices may have been caused by the increasing use of the commodity for financial purposes in the country.

Chinese borrowers have taken to using iron ore as collateral for financing in lieu of steel, which led to a spike in buying by those seeking bank loans.