The Fortescue Ltd (ASX: FMG) share price had a very difficult 2024, falling by a painful 37.9%. The situation looks even worse when considering the S&P/ASX 200 Index (ASX: XJO) rose by 7.5% over the year, meaning the ASX mining share underperformed the index by just over 45%!
No company management wants to see such a share price drop, so the size of this decline is worrisome.
But it's understandable why the market has been so rough on the miner. It all comes down to commodity prices. Fortescue's main focus is iron ore, and in my view, this is where everything has gone wrong for the company and the Fortescue share price.
Image source: Getty Images
Iron ore price
As a mining business focused predominantly on iron ore, Fortescue's profit generation is heavily influenced by the price of its commodity.
The mining costs don't typically change much month to month, so any changes to the iron ore price can be a significant positive or negative for the business.
According to Trading Economics, the iron ore price fell from above US$140 per tonne at the start of the year to finish 2024 at approximately US$103 per tonne.
That means Fortescue's monthly profit generation potential today is significantly less than it was in January 2024.
Fortescue's FY24 result
For the 12 months to 30 June 2024, Fortescue reported that its revenue rose 8% to US$18.2 billion, net profit after tax (NPAT) rose 3% to $5.66 billion.
While the company's total dividend per share increased by 13% to A$1.97 per share, it cut its final dividend for FY24 was cut by 11% to 89 cents, showing how the commodity decline impacted its profit and dividend in the second half of FY24.
Expectations for FY25
As the calendar year 2024 ended, investors were likely considering the expectations for the rest of FY25.
Fortescue is guiding that it expects to ship between 190mt and 200mt of iron ore, including between 5mt to 9mt for Iron Bridge. That compares to 191.6mt of iron ore shipments in FY24.
The company continues to work on its four green hydrogen projects in Australia, the United States, Norway and Brazil. Fortescue also announced it signed a US$2.8 billion partnership with Liebherr to jointly develop a range of mining solutions. The two companies are working on autonomous battery electric haulage solutions for large-scale mining operations.
Broker UBS is pessimistic about the Fortescue share price, with a price target of $17.60, implying a further decline from today's valuation of $18.41. The broker is forecasting Fortescue's net profit could drop to US$3.7 billion in FY25.
It's no wonder investors have pushed down the Fortescue share price if profit is going to fall by close to US$2 billion.
