Here's why the Fortescue (ASX:FMG) share price is having a green day

News out of the Fortescue camp has excited investors today.

| More on:
A woman wearing green flexes her bicep.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

The Fortescue Metals Group Limited (ASX: FMG) share price is edging higher on Wednesday.

The world's fourth-largest iron ore producer has kept relatively quiet over the past few weeks. However, since the beginning of November, the company's shares have soared by 28%, highlighting renewed investor confidence.

In contrast, the S&P/ASX 200 Index (ASX: XJO) registered a 0.6% gain over the same timeframe.

In early morning trade today the Fortescue share price reached $18.07, trading back at September levels. At the time of writing, Fortescue shares are up 2.44% to $17.84.

What's driving Fortescue shares higher?

News that energy behemoth AGL Energy Limited (ASX: AGL) will team up with green energy Fortescue Future Industries has excited investors.

Both companies have entered into a memorandum of understanding 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 Liddell coal-fired power station is scheduled to close down in 2023, with Bayswater going offline in 2025.

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

Furthermore, Fortescue's primary commodity, iron ore, has rebounded from its lows last month, leaping to US$108.04 a tonne today. This represents a big difference from when the steelmaking ingredient was exchanging hands for US$91.98 a tonne.

The price of iron ore has been on a rollercoaster ride in 2021, rising to a record US$229 in May to recent year-to-date lows.

What do the brokers think?

This month a couple of brokers rated the company's shares with varying price points.

Global investment bank Citi downgraded its outlook on the Fortescue share price from buy to neutral. The broker noted that China steel production cuts may persist through to the 2022 Chinese New Year on 1 February. Furthermore, it believes that a strong destock cycle is underway.

While this may seem negative at first, Citi continued on saying that China is now starting targeted monetary policy easing. This leads the broker to assume an increasing likelihood of a strong post-Chinese New Year recovery in iron ore demand.

Nonetheless, the broker retained its original 12-month price target on Fortescue shares at $18 apiece.

In addition to Citi's assessment, JP Morgan weighed in, downgrading the company's shares to neutral from overweight. It followed suit, cutting its outlook on Fortescue by 9.1% to $20 a share.

Fortescue share price snapshot

Over the past 12 months, Fortescue shares have declined close to 20% in value. However, when looking at year to date, its losses are further in the red by 25% for the period.

Fortescue commands a market capitalisation of roughly $54.31 million, and has over 3 billion shares on its registry.

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.

More on Resources Shares

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Resources Shares

Is the Fortescue share price a buy for passive income?

Let’s dig into the potential of this mining giant.

Read more »

Female miner standing next to a haul truck in a large mining operation.
Resources Shares

Major miners fall as iron ore prices continue to sink

Waning Chinese demand and oversupply concerns push iron ore prices lower.   

Read more »

A mining worker clenches his fists celebrating success at sunset in the mine.
Resources Shares

Would I buy Pilbara Minerals shares?

Are investors missing an opportunity with this lithium stock?

Read more »

Three miners looking at a tablet.
Resources Shares

Here's the earnings forecast out to 2029 for BHP shares

Let’s dig into the predictions.

Read more »

A smiling miner wearing a high vis vest and yellow hardhat does the thumbs up in front of an open pit copper mine.
Broker Notes

Why Macquarie expects this ASX All Ords copper stock to soar 48% in a year

Macquarie forecasts another big year of gains ahead for this ASX All Ords copper stock. But why?

Read more »

Female miner standing smiling in a mine.
Broker Notes

Why Macquarie predicts Pilbara Minerals shares could surge 71%

Macquarie forecasts a big rebound ahead for Pilbara Minerals shares. Let’s find out why.

Read more »

Two mining workers in orange high vis vests walk and talk at a mining site.
Resources Shares

ASX All Ords mining stock sinks on US silver acquisitions

Investors are bidding down the ASX All Ords miner on US acquisition news. But why?

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

How these 2 tailwinds could boost the BHP share price into 2026

A leading expert forecasts that BHP shares are set to recover. But why?

Read more »