There is a fund manager that believes the Fortescue Metals Group Limited (ASX: FMG) share price could reach $50.
As one of the largest iron ore miners in the world, Fortescue’s fate is substantially reliant on how the iron ore price performs. Six months ago it shot above US$200 per tonne, but has since fallen back significantly. However, one fund manager believes that there is a situation that could see Fortescue shares reach $50.
Potential for a $50 Fortescue share price
According to reporting by the Australian Financial Review, the Tribeca Investment Partners Global Natural Resources Fund’s manager, Ben Cleary, thinks that 2022 could be a good year for iron ore miners, including Fortescue, BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
The AFR quoted him as saying:
“I think iron continues to rally in the first quarter to $US150 a tonne or higher, well above current consensus expectations of $US100 a tonne. China’s credit impulse is starting to expand after mostly contracting in 2021 and infrastructure demand for iron ore should be particularly strong.”
He pointed out that the market was too pessimistic about iron in 2021 and that could be the same again in 2022.
However, it was also noted that there could be larger supply in 2022 from both Australia and Brazil, with Chinese demand possibly not growing to meet that supply. Environmental impacts could be a limiting factor on Chinese demand, according to AFR reporting.
Green development is the key
Fortescue’s push into green activities like green hydrogen and green ammonia could be the key to unlocking a significantly higher Fortescue share price.
Fortescue Future Industries (FFI) is the division which is expanding into renewable energy and green products with a vision of making green hydrogen the most globally traded seaborne commodity in the world.
Mr Cleary said: “Fortescue is the pure-play iron ore exposure and comes with the added benefit of a green hydrogen call option that you are getting for free at current levels.
“Fortescue is well ahead of peers in terms of hydrogen and ammonia production, and this could be worth $50 a share or more if they execute.”
Summary thoughts
I do think that Fortescue has a good future ahead of it. The world is going to spend enormous amounts on decarbonising and will have ongoing energy needs in the coming decades, including after the world (hopefully) reaches net zero. That’s a key reason why I’m a Fortescue shareholder.
However, Fortescue will continue to be heavily influenced by what happens with the iron ore price in the medium-term.
