The Fortescue Metals Group Ltd (ASX: FMG) share price has dropped 2.9% over the past month.
That's despite a solid rally over the first seven trading days in November, which has seen shares in the S&P/ASX 200 Index (ASX: XJO) mining giant charge 16.7% higher.
The monthly drop in the Fortescue share price, and the rebound in November, are largely tied in with the iron ore price.
But there's more to the outlook for Fortescue than the iron ore price. We'll look at another key factor shortly. But first…
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What's been happening with the iron ore price?
The iron ore price has been trending lower amid a slowing global economy. Lower demand from China, which continues to pursue growth-hampering COVID-zero policies,
The industrial metal traded at all-time highs of US$240 per tonne in May 2021. This year it topped out near US$160 in March. Since then, it's trended lower.
As for the past month, iron ore fetched US$98 per tonne on 10 October, dropping to US$81 per tonne on 1 November. Hence the significant pullback in the Fortescue share price.
As for the past week's bounce in Fortescue shares, iron ore has since lifted to US$89 per tonne.
But as we said, there's more to the outlook for Fortescue than the price of iron ore.
Under pressure from decarbonisation strategy
While seeing the ASX mining giant take a lead in the decarbonisation push may be heartening, analysts have serious concerns about the costs and benefits of that strategy and the green hydrogen ambitions at Fortescue Future Industries (FFI).
As reported by The Bull, Sequoia Wealth Management senior wealth manager Peter Day said Sequoia had downgraded Fortescue "to a sell recommendation".
Day noted that the cost increases at FMG were "comparable or at the lower end of inflation forecasts across the sector".
However, he added, "FMG's decarbonisation strategy is the key driver in reducing our valuation by 19%. We downgrade to a sell recommendation."
Bell Potter has similar concerns over the outlook for the Fortescue share price. The broker said:
The capital being committed to FFI is increasing significantly, as is the timeframe over which it is being committed. While the energy independence and savings guidance are attractive, much of the technology remains to be commercially developed and quantifying the benefits remains problematic.
Bell Potter also downgraded Fortescue to a sell recommendation.
According to the broker, "The increased expenditure commitment to FFI and FMG's decarbonisation strategy is the key driver of a 19% reduction to our NPV-based valuation, from $17.33/sh to $14.09/sh."
The Fortescue share price closed yesterday at $17.12, more than 20% above Bell Potter's price target.
Fortescue share price snapshot
While down in 2022, the Fortescue share price remains up 20% over the past 12 months. That compares favourably to the full-year loss of 6% posted by the ASX 200.
