Why has the FMG share price been on a rebound?

Posted: 15 November 2021 12:38 pm

Shares in mining giant Fortescue Metals have climbed 12% in the last week following an indifferent 12 months for the company.

Like its iron ore mining peers, Fortescue Metals Group (ASX: FMG) has lost nearly a third of its market value since August.

However, the stock has been clawing back some of the losses in the last month, and in fact rebounded more than 10% in the past week.

Fortescue shares were again among the top traded shares on Monday, lifting another 3.8% at $16.36 at the time of writing.

Why is the FMG stock price on the rise?

A large part of the rebound stems from improved investor confidence in the iron ore exporters after prices of the key steel making ingredient stabilised above the US$90 a tonne level in the past week, halting a rapid decline in the previous few weeks that had unnerved the market.

The change in sentiment follows hopes that major players in China's property sector will be able to deal with their debt woes, after Chinese property giant Evergrande Group managed to avoid a default by making overdue payments.

That, along with clear signals that the Chinese government is supporting the sector by allowing increased bank lending to real estate developers and encouraging asset divestments to limit damage to home buyers, has bolstered confidence that the country's steel demand will nudge ahead of 1 billion tonnes again this year.

That should be beneficial to Australian iron ore exporters, and particularly to Fortescue, Australia's third largest iron ore miner, because it also helps narrow the discount for its lower grade ore.

Green outlook

Investors have also cheered Fortescue's increasing focus on renewables energy through its Fortescue Future Industries (FFI) at a time when global decarbonisation efforts have been under the spotlight. A spate of announcements in recent weeks indicate that the group is seeing vast economic potential in the sector.

FFI has announced the construction of a green energy manufacturing centre at Gladstone in Queensland with an initial capacity of 2 gigawatts at its electrolyser factory. It has also signed an initial agreement with JCB and Ryze Hydrogen to become the UK's biggest supplier of green hydrogen, whose production it expects to grow to 15 million tonnes a year by 2030, and 50 million tonnes a year in the next decade.

FFI is also looking to develop 7 hydropower projects and 11 geothermal energy projects in Papua New Guinea to generate renewable energy for the production of green hydrogen and green ammonia.

Fortescue has already outlined plans to spend up to US$600 million on clean energy projects during FY 22 and CEO Elizabeth Gaines last week confirmed this would go ahead despite the slump in iron ore prices, indicating the company's commitment to its newly diversified business.

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