The share price of Fortescue Metals Group Limited (ASX: FMG) has enjoyed an incredible run and this morning is up another 4% to within touching distance of its one-year high of $6.44.
Source: Google Finance
In fact, it's very close to its 5-year high too!
Source: Google Finance
I'm certainly no technical analyst but I'm sure technical analysts would suggest that if Fortescue's share price can meaningfully break above $6.50 towards $7, there's a fair chance that it'll continue to head upwards… pending a couple of things.
There are three main factors that dictate the direction of the Fortescue share price:
1 – The US dollar – As iron ore is priced in US dollars and Fortescue reports earnings in Australian dollars, the stronger the US dollar, the higher Fortescue's Australian dollar earnings will be.
2 – The iron ore price – obviously as the price received for ore that Fortescue pulls out of the ground increases, so too does its margins and profit. As Fortescue has a largely fixed cost base, a small increase in the iron ore price can have a massive impact on the group's profit.
3 – Efficiency and safety – despite an incredible cost-cutting initiative that's seen C1 costs drop from US$44 per wet metric tonne to US$13.55 per wet metric tonne, Fortescue has been able to maintain an impressive safety record. It will need to keep cutting costs, while maintaining safety, to keep shareholders happy.
Then perhaps the company can get back to levels of 2008:
Source: Google Finance
Fortescue has also been named as a potential dividend stock, however at current prices the yield in the short term could disappoint investors as the company seeks to further reduce debt while making some incremental investments. There are plenty of alternatives!
