The Fortescue Metals Group Limited (ASX: FMG) share price has risen in the first week of October. Since the start of the month, it has climbed by almost 5%.
It's not the only one that has seen a positive start to the month. The S&P/ASX 200 Index (ASX: XJO) as a whole has risen by more than 5% after the surprise interest rate increase by the Reserve Bank of Australia (RBA) on Tuesday. It was only a 25 basis point rise this month, less than many experts predicted.
What's the outlook for iron?
For at least the next few years, the performance of iron ore could be key for Fortescue.
The current profit and cash flow generation from Fortescue is dependent on its iron ore mining. Higher revenue for the iron ore it produces largely turns into more net profit after tax (NPAT) and cash flow for the company.
But, the opposite is true when the resource price goes down. Iron ore has been drifting lower since June. The iron ore price is currently sitting at around US$95 per tonne, according to CommSec.
Some experts think the iron ore price is headed lower over the next couple of years. This could put pressure on the Fortescue share price.
The resources and energy quarterly report from the chief economist from the Department of Industry, Science and Resources notes that the iron ore price fell around 20% in the three months to September 2022.
The decline was attributed to growing global recessionary fears, new COVID-19 outbreaks and weakness in China's housing sector. These have dampened world steel and iron ore demand in recent months.
The chief economist's report projects the benchmark iron ore price to average US$90 per tonne in 2023 and around US$70 per tonne in 2024. This is expected to lead to a redintion of earnings from iron ore miners.
Latest on Fortescue's green efforts
Fortescue has a plan to become a decarbonised materials and green energy powerhouse. Producing green hydrogen and green ammonia is a key focus for the company.
It recently announced its plan for US$6.2 billion of capital investment by 2030 to eliminate fossil fuel risk and reduce operating costs by US$818 million per year.
The cumulative operating cost savings are US$3 billion by 2030, with a payback of capital by 2034 at current market prices.
Fortescue Future Industries will also establish a "significant new green growth opportunity by producing carbon-free iron ore product and through the commercialisation of decarbonisation technologies".
Success with these efforts could be an important driver of the Fortescue share price in the future.
Management commentary
Fortescue founder and executive chair Andrew Forrest said:
Fortescue, FFI [Fortescue Future Industries] and FMG, is moving at speed to transition into a global green metals, minerals, energy and technology company, capable of delivering not just green iron ore but also the minerals, knowledge and technology critical to the energy transition.
FFI is partnering with Tree Energy Solutions (TES) to develop a green hydrogen import facility in Germany. A US$127 million investment will be funded by FFI's unutilised capital commitment and provides FFI with a pathway for access to "critical infrastructure to execute its strategy".
TES is developing a portfolio of terminals globally that will enable the transportation of green energy.
The first phase of the partnership is to develop and invest in the supply of 300,000 tonnes of green hydrogen. The first delivery into the TES terminal in Germany is expected to take place in 2026. This could help get green hydrogen into energy networks and therefore help the Fortescue share price.
Forrest said:
The United Kingdom and Europe urgently need green solutions to replace fossil fuels and this investment will enable Europe to do exactly that. Not in 2050, but in four years from now.
