The Fortescue Metals Group Ltd (ASX: FMG) share price has been losing ground lately and is down 18% this past month.
Yet, Fortescue shares finished Monday's session 5% into the green amid stronger ore pricing and the company's CEO making a play into hydrogen-based energy.
Suffice to say, it's been a bumpy ride lately for the iron ore giant's share price. It came off a high of $26.30 in July, spiralling downwards ever since to trade at $15.28 at the time of writing.
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What's up with the Fortescue share price lately?
The Fortescue share price has been on the slippery slope alongside its business partner, iron ore.
The price of iron ore has tanked by more than 47% since July, driven largely by efforts out of China to curb steel supply and production.
According to some reports, more than 80% of China's domestic steel mills suspended operations for maintenance in September.
This is coupled with Beijing's environmental push to curb emissions from fossil fuels. This has seen many steel producers under pressure to lower output levels, or even remain closed.
Hence, the price of iron ore sunk 49% in Q3 2021, falling from its previous high of US$222/tonne in July to US$116/tonne.
Curiously, this level is near 5-year highs for the raw material that occurred in May 2021. It corresponded to a 5 year high in the Fortescue share price in the same period as well.
Prior to this, the company reported record full-year results in its FY21 earnings where it recognised a 117% year on year increase in net profit from revenue of US$22.3 billion – up 74% from the year prior.
As such, shareholders also enjoyed a $3.58 per share dividend in FY21, up from $1.76 a year ago.
It begs the question: can Fortescue sustain this momentum? And can its share price deliver the same kind of total return (capital gains + dividends)?
One leading broker certainly believes so and thinks the company's recent moves to pivot into renewables may be a bullish signal for its shares.
Can Fortescue deliver once more?
Investment bank Macquarie thinks Fortescue shares have more room to grow, given the company's recent manoeuvre into hydrogen, green ammonia and green steel.
The broker notes that Fortescue has taken a leading role among its peers to decarbonise its operations. Macquarie also reckons that future climate change disclosures in its reporting may be a bullish signal for its share price.
Fortescue has taken the initiative to slice carbon from its operations in the next decade and achieve scope 3 carbon neutrality by the year 2040, the broker notes.
Given it is early days yet, the bank acknowledges "the economics of hydrogen, green ammonia and ultimately green steel remain unclear". However, it believes Fortescue is well-positioned to be a front runner in providing more clarity on the same.
Macquarie believes the company's "ability to provide clarity on these potentially significant investments over time could be a key positive catalyst" for the Fortescue share price.
Meanwhile, fellow broker RBC Capital Markets is seeking more details from the company's hydrogen deal announcement yesterday.
After the iron ore producer announced a total planned investment of US$650 million from Fortescue Future Industries in hydrogen-based energy, RBC Capital Markets analysts think the "capital intensity seems very low".
As such, it is choosing to preclude any green hydrogen or green ammonia modelling into its forecasts for Fortescue at this stage.
The recent hydrogen announcements out of Fortescue's camp could be a welcome upheaval for its share price, as it has posted a loss of 11% in the past 12 months and is down 36% this year to date.
