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Can the Fortescue (ASX:FMG) share price break the $30 barrier in 2022?

The Motley Fool logo The Motley Fool 19/01/2022 Aaron Teboneras

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Key Points

  • Fortescue share up 6% year to date
  • Rebound in iron ore prices
  • Strong Q1 FY22 result could lead to bumper year

The Fortescue Metals Group Limited (ASX: FMG) share price has powered ahead in the last couple of months.

At Wednesday’s closing bell, the mining outfit’s shares finished 1.49% lower to $20.44 apiece. This is a sharp recovery from when its shares were trading around the $14 mark in early November.

What happened with the Fortescue share price?

Investors have been buying up Fortescue shares following a surge in market confidence across the iron ore industry.

Previously, volatility in Fortescue’s key commodity, iron ore saw a downturn from August to the end of November. This was driven by a slowdown in Chinese demand for the steel making ingredient.

The Asian superpower applied political pressure to its steel producers in curbing reliance on Australian iron ore.

Chinese lawmakers introduced new rules, limiting the importation of iron ore in 2021 to no more than 2020 levels. This led to supply issues as China threatened to impose harsh penalties for steel mills that exceed production limits.

As a result, the price of iron ore more than halved during the course of last year. From reaching its lofty highs of US$200 in May, the steel making ingredient price shrunk to around the US$100 mark in the following months.

Fast-forward to today, the current iron ore price has rebounded to US$127 per tonne, an increase of 23% since 1 December.

In addition, the company’s subsidiary, Fortescue Future Industries will team up with energy behemothAGL Energy Limited (ASX: AGL).

Both companies entered into a Memorandum of Understanding (MOU) to develop a hydrogen hub for the Hunter Valley coal plants. Namely, this relates to the Liddell and Bayswater coal-fired power stations, which AGL plans to transform the site.

The Liddell coal-fired power station is scheduled to close down in 2023, with Bayswater going offline in 2025.

Fortescue boss, Andrew “Twiggy” Forrest will be involved with the development, which will consist of a 12-month feasibility study.

Can the Fortescue shares hit the $30 mark in 2022?

If the Fortescue share price is to reach $30 in 2022, the price of iron ore will need to accelerate further. Reaching levels above US$200 per tonne will indeed translate to bumper profit from the world’s fourth largest iron ore miner.

In its FY22 first quarter results, Fortescue revealed iron ore shipments of 45.6 million tonnes, up 3% on Q1 FY21.

Average revenue of US$118 per dry metric tonne represents revenue realisation of 73% of the average Platts 62% CFR Index.

In addition, C1 costs came to US$15.25 per wet metric tonne, which is considered one of the lowest in the industry.

A strong performance across the supply chain, together with the contribution of Eliwana could drive a record result in 2022. Furthermore, the inclusion of the Iron Bridge Magnetite project is expected to bring 22 million tonnes each year of high-grade iron ore concentrate. Key milestones to bring the project up to speed have been achieved, with production slated for December 2022.

It’s worth noting that Fortescue is scheduled to report its H1 FY22 scorecard to the ASX on 16 February.

The post Can the Fortescue (ASX:FMG) share price break the $30 barrier in 2022? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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