The impressive runs made by the BHP Group Ltd (ASX: BHP) share price, the Rio Tinto Limited (ASX: RIO) share price, and especially the Fortescue Metals Group Limited (ASX: FMG) share price have generated market-beating returns for investors in 2019.
The major catalyst for these gains has been a material rise in the iron ore price since the start of the year. This has been driven by a combination of supply issues in Australia and Brazil and increasing demand from Chinese steel makers.
Can this run continue?
Unfortunately, if you haven't bought shares in these three miners yet, it might be too late to join the party. This is because a growing number of brokers aren't convinced that the iron ore boom can continue.
According to Barron's, analysts believe that production of the steel-making ingredient is rebounding after recent disaster-related interruptions. So much so, they fear that a supply surge and slipping demand could send prices into a tailspin.
A report by Barclays says: "We are approaching peak supply disruptions in iron ore. We are starting to see a clear supply response."
It expects prices to drop down by almost half to US$70 a tonne next year, whereas analysts at Morningstar are even more bearish and have predicted a slide to US$41 a tonne by 2023.
Financial research firm CFRA is also sounding the warning bell. Mining analyst Matthew Miller told Barron's that: "All of the big four iron-ore firms will find a way to increase supply. We don't think the market is going to be as tight in 12 to 16 months."
Which could be particularly bad news as UBS is tipping demand from China to fall in the near future. And given how it accounts for the production of almost half the steel in the world, this could weigh heavily on prices.
UBS notes that Chinese steel inventories are rising, which it feels could be a sign that "demand may be starting to roll over."
Overall, unless there are further disruptions from key producers, these analysts appear to believe that iron ore prices are heading only one way – down.
