This top broker has named the Fortescue (ASX:FMG) share price as a sell

The Fortescue share price has been slapped with a selling rating.

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The Fortescue Metals Group Limited (ASX: FMG) share price has been rated as a sell by a leading broker.

UBS has decided to call the iron ore giant a sell as its expectations regarding the iron ore price have weakened.

What has UBS said about the Fortescue share price?

According to reporting by the Australian Financial Review’s Tom Richardson, UBS believes that the iron ore price is going to drop below US$100 in the next few months and end up at a range of between US$70 per tonne to US$80 per tonne.

That expectation is based on a slowdown of property activity in China because actions taken by authorities as well as the possibility of Evergrande defaulting, which may impact confidence.

If you haven’t heard of Evergrande, it’s a very large Chinese developer that is currently in financial troubles.

Mr Richardson also reported that UBS has lowered its projection for the FY22 dividend from $3.06 per share to $2.12 per share. The FY22 underlying net profit is expected to be US$6.3 billion. Profit expectations can have a big impact on the Fortescue share price.

Australia’s new treaty

It may also be impossible for iron ore miners and China to ignore the new strategic treaty that was announced between Australia, the US and the UK.

This arrangement between the three countries is going to be called Aukus. Part of the agreement is that Australia will be getting nuclear submarines, though they won’t be armed with nuclear weapons.

The ABC quoted the US President Joe Biden, who said:

This is about investing in our greatest source of strength — our alliances — and updating them to better meet the threats of today and tomorrow.

However, Chinese officials did not think highly of this new deal. Chinese foreign ministry spokesman Zhao Lijian said of the agreement that it:

Seriously undermines regional peace and stability and intensifies the arms race. The export of highly sensitive nuclear submarine technology by the United States and Britain to Australia once again proves that they use nuclear exports as a tool of geopolitical games and adopt double standards, which is extremely irresponsible.

As the major purchaser of Australian iron ore, China can have a major influence on the iron ore price.

What now for the Fortescue share price?

UBS has put a price target on Fortescue. The 11.5% drop of Fortescue shares on Friday ensured that the large iron ore miner has rapidly reached close to that level already.

Time will tell what happens next for the iron ore price and Chinese demand.

However, for Fortescue shareholders who have held for more than a couple of weeks, the final FY21 dividend is expected to be paid on 30 September 2021.

That incoming dividend is a payment of $2.11 per share, which was more than twice the size of the FY20 final dividend of $1 per share.

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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. 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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