The Fortescue Metals Group Limited (ASX: FMG) share price had a strong finish to 2021. What is the outlook for 2022?
What has been happening recently to the Fortescue share price?
Over the last month the Fortescue share price has gone up 16%. Since the end of October 2021 it has actually risen by more than 40%.
Its shares almost halved between 29 July 2021 and 31 October 2021. Fortescue’s fortunes are even more attuned to the iron ore price than BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO). Its earnings currently purely come from iron, whereas BHP and Rio Tinto make revenue from resources like copper and aluminium, respectively.
Fortescue’s iron ore is currently seen as lower grade compared to the product of its peers. This can see the discount widen to the higher-quality stuff when the iron ore price is lower, to the detriment of Fortescue.
How is iron ore going to perform in 2022?
It’s anyone’s guess what is going to happen next. I’m not sure anyone was expecting iron ore to shoot so high during 2021. I also don’t think that many people would have expected the iron ore price to recover so much over the last couple of months either. Iron ore is a key factor for the profit and Fortescue share price.
Will Chinese demand recover as environmental curbs start coming off in China? There was a suggestion that some Chinese consumption had dropped partly because officials were thinking about the upcoming Winter Olympics. It’s thought that some Chinese demand could return in the next few months.
However, there’s also the slow motion crunch of the Chinese real estate developer market (such as Evergrande) which could see demand for iron ore decline. Chinese construction is where a large amount of Australia’s iron ore is used.
Could the Fortescue share price be a good idea right now?
I’m really impressed by the progress that Fortescue’s green division is making with linking up with various regions, countries and companies to potentially develop green projects and energy alternatives. The JCB deal in particular looks very compelling.
Fortescue Future Industries (FFI) is going to become the largest supplier of green hydrogen to the UK after signing a “multi-billion-pound” deal with construction giant J C Bamford Excavators (JCB) and Ryze Hydrogen (Ryze).
JCB and Ryze are going to purchase 10% of FFI’s global green hydrogen production. FFI’s green hydrogen production is expected to increase to 15 million tonnes of green hydrogen per year by 2030, and then grow to 50 million tonnes per year in the next decade after that.
I don’t think the market is fully appreciating how interesting the FFI division is for the overall Fortescue picture. It could become a really important factor over the next decade, though iron ore will decide the profit prospects for the next few years.
