Could the Fortescue Metals Group Limited (ASX: FMG) share price fall as low as $12.50 by Christmas 2021?
A few months ago Fortescue shares reached a height of $26.30. But since then, it has fallen more than 45% to $14.
Could the Fortescue share price fall even further?
Morgan Stanley, one of the leading brokers operating in Australia, rates Fortescue shares as a sell.
It has a price target on the business of $12.50.
That suggests that the broker believes the miner could fall by another 10% from where it is now.
However, the price target represents where the broker believes the business will be trading at in 12 months from now, not necessarily around Christmas 2021.
Currently, Morgan Stanley thinks that the iron ore market situation doesn't favour low-trade iron ore, which describes Fortescue, not the other large S&P/ASX 200 Index (ASX: XJO) iron ore miners of Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP).
Fortescue generates its profit from iron ore, so the rise and fall of iron ore can impact the profit and investor thoughts on the Fortescue share price.
What has the miner been up to recently?
FY21 was a big year for Fortescue. It generated net profit after tax (NPAT) of US$10.3 billion, increasing 117% from FY20. It made net operating cashflow of US$12.6 billion, with free cashflow of US$9 billion.
The Fortescue CEO Elizabeth Gaines outlined the two growth focuses of the business:
Through the Iron Bridge Magnetite project and Fortescue Future Industries, we are investing in the growth of our iron ore operations, as well as pursuing ambitious global opportunities in renewable energy and green industries.
Iron Bridge is located 145km south of Port Hedland and incorporates the "world class" North Star and Glacier Valley Magnetite ore bodies. The total cost of this project is expected to be US$3.3 billion to US$3.5 billion, which will deliver 22mt per annum of high grade 67% Fe magnetite concentrate product.
The Fortescue Future Industries (FFI) division is looking to take a global leadership position in the renewable energy and green products industry by harnessing the world's renewable energy resources to produce green electricity, green hydrogen, green ammonia and other green industrial products.
FFI is aiming to make renewable green hydrogen as the most globally traded seaborne energy commodity in the world. This division is a key enabler of Fortescue's decarbonisation strategy, with plans for green boats, trains and trucks.
Fortescue recently announced a target to achieve net zero Scope 3 emissions by 2040, with green hydrogen being the key enabler of that.
The Fortescue share price could be impacted by a lower iron ore price
Some brokers believe that the iron ore price could fall even further. UBS reckons the iron ore could fall to US$70 per tonne to US$80 per tonne.
UBS also rates Fortescue as a sell, though the price target is $15.
