High iron ore prices are continuing to boost the Fortescue Metals Group Limited (ASX: FMG) share price.
Over the last month the Fortescue share price has gone up by 12%. It has been a sizeable recovery after a decline between the end of February and the recent low in March 2021.
Even so, the Fortescue share price remains down by around 14% from that high in February 2021.
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What's going on with the iron ore price?
There have been some effects from COVID-19 on the iron ore price. China has been providing stimulus for its economy which has seemingly benefited the iron ore price. The Chinese demand for iron ore remains high and the iron ore price is also high. The iron ore price is currently around US$190.
Another factor for the strong iron ore price is that supply from Brazil continues to be lower than expected from the iron ore miner Vale. COVID-19 impacts have meant that production continues to be disappointing.
Analysis by the Australian Financial Review pointed out that margins for the miners are higher than they were a decade ago during the last boom. Another difference with that boom is that the US and Europe are spending a lot of money on infrastructure which should help things.
The iron ore price isn't going to stay this strong according to analysts.
The AFR reported that Goldman Sachs said on Tuesday it thinks the iron ore will fall to $US137 a tonne by the end of June 2021, this could mean a 27% fall by the end of the financial year.
Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) think that conditions in China remain strong. This may mean that FY21 earnings of the iron ore giants are stronger than some analysts are expecting.
How good is the Fortescue FY21 result going to be?
It's hard to know exactly how good the result will be because of the unknown of how iron ore prices will go over the next couple of months. But prices have remained high for most of the second half of the financial year too.
Morgan Stanley is one of the brokers that's most bearish about Fortescue with a share price target of $17.45 over the next 12 months. The broker is concerned that emission reductions in the Chinese city called Tangshan could cause trouble for lower grade miners like Fortescue. Morgan Stanley thinks that Chinese stimulus ending will be a negative for the iron ore price.
Broker UBS also thinks the good times aren't going to continue, with lower Chinese demand and more supply from Brazil.
But not every broker thinks that way. Ord Minnett thinks that concerns about China are too pessimistic. Production can come online in other places. The broker thinks that the Fortescue share price could go higher, with a share price target of $29.
According to Ord Minnett, Fortescue has a FY21 grossed-up dividend yield of 23%. Using its earnings estimates, the Fortescue share price is valued at 7x FY21's estimated earnings.
