The Fortescue Metals Group Limited (ASX: FMG) share price is edging higher on Wednesday.
The world’s fourth-largest iron ore producer has kept relatively quiet over the past few weeks. However, since the beginning of November, the company’s shares have soared by 28%, highlighting renewed investor confidence.
In contrast, the S&P/ASX 200 Index (ASX: XJO) registered a 0.6% gain over the same timeframe.
In early morning trade today the Fortescue share price reached $18.07, trading back at September levels. At the time of writing, Fortescue shares are up 2.44% to $17.84.
What’s driving Fortescue shares higher?
News that energy behemoth AGL Energy Limited (ASX: AGL) will team up with green energy Fortescue Future Industries has excited investors.
Both companies have entered into a memorandum of understanding to develop a hydrogen hub for the Hunter Valley coal plants. Namely, this relates to the Liddell and Bayswater coal-fired power stations, which AGL plans to transform.
The Liddell coal-fired power station is scheduled to close down in 2023, with Bayswater going offline in 2025.
Notably, Fortescue boss Andrew ‘Twiggy’ Forrest will be involved with the development, which will consist of a 12-month feasibility study.
Furthermore, Fortescue’s primary commodity, iron ore, has rebounded from its lows last month, leaping to US$108.04 a tonne today. This represents a big difference from when the steelmaking ingredient was exchanging hands for US$91.98 a tonne.
The price of iron ore has been on a rollercoaster ride in 2021, rising to a record US$229 in May to recent year-to-date lows.
What do the brokers think?
This month a couple of brokers rated the company’s shares with varying price points.
Global investment bank Citi downgraded its outlook on the Fortescue share price from buy to neutral. The broker noted that China steel production cuts may persist through to the 2022 Chinese New Year on 1 February. Furthermore, it believes that a strong destock cycle is underway.
While this may seem negative at first, Citi continued on saying that China is now starting targeted monetary policy easing. This leads the broker to assume an increasing likelihood of a strong post-Chinese New Year recovery in iron ore demand.
Nonetheless, the broker retained its original 12-month price target on Fortescue shares at $18 apiece.
In addition to Citi’s assessment, JP Morgan weighed in, downgrading the company’s shares to neutral from overweight. It followed suit, cutting its outlook on Fortescue by 9.1% to $20 a share.
Fortescue share price snapshot
Over the past 12 months, Fortescue shares have declined close to 20% in value. However, when looking at year to date, its losses are further in the red by 25% for the period.
Fortescue commands a market capitalisation of roughly $54.31 million, and has over 3 billion shares on its registry.