The Fortescue Metals Group Ltd (ASX: FMG) share price has managed to stay above $20 for most of 2023. Could it be a buy for FY24?
Over the last several months, the iron ore miner has benefited from solid iron ore prices.
Could the Fortescue share price be worth buying?
The company is making progress towards becoming a large player with its green hydrogen projects, but it’s not generating earnings from this yet, so we need to put a lot of the focus on iron for the shorter-term.
It would be helpful for Fortescue’s earnings if the ASX iron ore share could sell more of its production to different countries. For now, it’s heavily reliant on China buying the iron.
Strangely enough, China bought a lot of iron in the first period of COVID-19, but since the reopening of the economy we haven’t seen a strong bounceback of the economy.
While Chinese steel mills haven’t been making vast amounts of steel for domestic consumption, there are reports that Chinese steel exports are noticeably up on 2022’s numbers.
If China continues to pay a price of more than US$110 per tonne for iron ore, then Fortescue can keep making good enough profit.
Numbers on CMC Markets suggest that Fortescue shares could pay a fully franked dividend yield of 8.25%.
FFI
Fortescue Future Industries (FFI) may or may not be an important part of the equation for the valuing the Fortescue share price.
At a minimum, the green division of the ASX mining share is helping it decarbonise operations, which is important for reducing pollution of the planet and can enable the business to sell ‘green iron’ which may be able to command a premium.
If things go well for the green hydrogen projects, then demand will hopefully increase and Fortescue’s production can reach its goals, with an initial target of 15 million tnnes per year.
There’s no guarantee that green hydrogen will be the way that the world goes for zero emission transportation. But, it could be an important development for boats, planes and perhaps to replace natural gas in pipeline. But, some customers have already signed up for large orders including E-ON.
Final thoughts on the Fortescue share price
I’ve been impressed with how well Fortescue shares have held up, but the question is whether today represents a good price.
On that front, I think it could pay to be patient and wait for a better price. Over the last few years we’ve seen that the Fortescue share price can go through large declines temporarily. I’d rather wait for one of those cyclical declines to at least around $19, if not even lower.
