In recent weeks, the Fortescue Metals Group Limited (ASX: FMG) share price has jumped higher. What’s going on?
Fortescue is one of the world’s biggest iron ore miners alongside Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP).
Fortescue share price keeps rising
The Fortescue share price has gone up by 26% since the middle of March 2022.
As a commodity business, Fortescue is a price taker, not a price maker. That means that Fortescue can’t really decide the price that it sells its iron ore at – the market decides as a result of supply and demand.
Luckily for Fortescue, the iron ore price has been performing strongly recently.
Iron ore price rises
According to reporting by the Australian Financial Review, S&P Platts shows the iron ore price went up another 0.6% overnight to US$160.80 per tonne.
S&P Platts noted to clients that iron ore prices rose as demand expectations remained positive in the near term. Demand was supported by rising steel prices and lower steel stocks in China.
Fortescue benefits from higher iron ore prices as it essentially flows straight to the net profit line of the business, after paying the government. The ASX mining share is committed to a high dividend payout ratio, so shareholders will likely see the benefits of higher profit in the next result with strong dividends.
Is the Fortescue share price an opportunity?
It’s almost impossible to know what the iron ore price will do next. Will China intervene to lower the commodity price?
Resource businesses are not ones that keep printing stronger and stronger results every year, like Xero Limited (ASX: XRO). The excitement, cash flow and dividend jump when resource prices are high. But, I think it makes more sense to buy when the commodity price and Fortescue share price are lower.
Therefore, I’m waiting until the Fortescue share price is back below at least $18, before thinking about adding to my position. I’d prefer to wait until the iron ore price falls below US$100 per tonne.
However, I do really like Fortescue’s green initiatives with Fortescue Future Industries (FFI).