The Fortescue Metals Group Ltd (ASX: FMG) share price was amongst the worst-performing ASX 200 shares last week. Its underperformance was largely driven by going ex-dividend, paying out a market-leading $1.470 per share dividend. However, the iron ore spot price has remained relatively stable, around the US$170 per tonne level. At the time of writing, the shares are trading at $22.76, up 3.03%.
While the Fortescue share price might be taking a breather, big brokers think it could retest its old highs.
Big brokers rate the Fortescue share price as a buy
On 4th March, UBS had a Fortescue share price target of $25 with a buy rating. The broker notes that the Fortescue share price has yet to reflect the 10% year-to-date increase of the iron ore spot price.
UBS believes that recent announcements such as the resignations of its COO Greg Lilleyman and other key personnel, and issues at Iron Bridge as factors dragging the Fortescue share price.
Macquarie Group Ltd (ASX: MQG) is also bullish on Fortescue shares with a $25.50 price target and outperform rating on 5th March. The broker thinks the near-term outlook for the iron ore market has improved from both a demand and supply perspective.
Macquarie notes that given the buoyant iron price, Fortescue could set new record earnings and dividends in 2H21.
Iron ore prices remain high
China’s week-long Lunar New Year break briefly put buoyant iron ore prices on hold late-February. The end of the holiday period lifted iron ore prices back to the US$170 range as Chinese steel mills restarted production and restock inventories.
A near term risk for iron ore prices could be the world’s largest iron ore miner, Vale, regaining its previous iron ore output. Vale has faced significant production challenges including a dam collapse in 2018 and ongoing COVID-related challenges in Brazil. The company said in Q4 it partially resumed all iron ore fines operations halted in 2019.
Potentially offsetting an increase in iron ore supply is China’s continued investments into infrastructure and technology. China’s total fixed-asset investment rose to 51.9 trillion yuan (US$8 trillion) in 2020, a 2.9% increase from the previous year.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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