The Fortescue Metals Group Limited (ASX: FMG) share price is a top performer on Monday, currently rallying 3.14% to $24.62.
2021 has been a choppy year for Fortescue shares, which hit an all-time high of $26.40 on 8 January before plunging to lows of $18.87 by 22 March.
Despite the recent volatility in the Fortescue share price, it’s rallied by around 65% in the past 12 months.
These moves have broadly coincided with the surge in iron ore prices, from about US$110 per tonne a year ago, to US$215 today.
With sky high iron ore prices supporting the bullish performance of Fortescue shares, where could iron ore prices go next?
The Australian Government’s commodity forecaster, Office of the Chief Economist (OCE) published its quarterly report last month, providing an outlook for iron ore prices, demand and supply.
Let’s take a look at what the OCE had to say about iron ore.
What’s driving iron ore prices?
The OCE report pointed to “strong demand for steel products in China and other advanced economies, as the global recovery continues to pick up pace coming out of the COVID-19 pandemic.”
“In China, fiscal stimulus has targeted new infrastructure investment throughout 2020 and into 2021, driving higher construction activity and demand for steel.”
From a supply-side perspective, it said that “tightness in supply from the world’s two major producers — Australia and Brazil — has also contributed to the substantial rally in iron ore prices.”
What’s next for iron ore?
Despite sky high iron ore prices, the OCE isn’t bullish about the medium-to-long term outlook for iron ore prices.
According to the quarterly report, “prices for iron ore are expected to ease from the second half of 2021, leading to some moderation in earnings over the subsequent two years. Total export value for iron ore is forecast to be $137 billion in 2021–22 and $113 billion in 2022–23.”
“Prices are forecast to average around US$150 a tonne in 2021, before falling to below US$100 a tonne by the end of 2022, as Brazilian supply recovers and Chinese steel production softens”.
What does this mean for the Fortescue share price?
According to Goldman Sachs, the Fortescue share price could be vulnerable to a fall in iron ore prices.
The broker currently has a sell rating on the iron ore giant’s shares with a 12-month target price of $18.20.
The post The Fortescue (ASX:FMG) share price is surging, but what’s next for iron ore? appeared first on The Motley Fool Australia.
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More reading
- Why this sector is lifting the ASX 200 higher today
- These 3 ASX 20 shares are up more than 60% in a year
- Why the Fortescue Metals (ASX:FMG) share price is flying high on Monday
- ASX 200 Weekly Wrap: COVID wobbles ASX as shares retreat
- Why the Fortescue (ASX:FMG) share price is getting left behind in 2021
Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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