Fortescue (ASX:FMG) share price rallies 5% as iron ore climbs

Fortescue may be trading higher on Monday, but what's the outlook for iron ore prices?

| More on:
Pilbara Minerals engineer with hard hat looks through binoculars at work site or mine as two workers look on

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Fortescue Metals Group Limited (ASX: FMG) share price is surging today, up 5.6% to $16.20.

After bouncing 13.7% off last week's lows of $14.15, investors will no doubt be hoping the Fortescue share price has finally turned the corner.

Let's take a look.

Fortescue share price rallies on higher iron ore prices

Fastmarkets reported an uptick in iron ore prices last Friday, adding US$2.66 a tonne or 2.5% to US$111.33 a tonne.

Sources told Fastmarkets that iron ore prices increased amid "more speculative buying activity for low and mid-grade iron ore fines".

That said, iron ore prices started the month of September around US$143 a tonne. In comparison, they were fetching record highs of US$230 a tonne in May.

Despite today's slight improvements, there's still a long way to go for both the Fortescue share price and iron ore.

What's the outlook for iron ore?

Analysts at the Bank of America view further declines for the key steel-making metal, forecasting a 35% drop to US$70 per tonne.

The bank analysts said that China's policy to "force" steel production -10% during the period August-December "puts the iron ore market into surplus".

Barring a change in this policy stance, we don't see any reason why iron ore shouldn't trade down to marginal cost (c. $80/t), particularly as 'blue sky' policies loom in early 2022 for China's winter Olympics.

They added that $US70 a tonne was also possible as iron ore shipments rose and the price of feedstock potentially faced headwinds that could "cut well into the cost curve".

Linked to that, our China steel team anticipates another weak year for steel production in 2022. Of course, embedded in that … is the possibility of a rebound in steel production post-Olympics, but until then iron ore prices remain under pressure.

The last time iron ore traded around US$70 a tonne was in December 2018. Back then, the Fortescue share price was fetching just $4 a share!

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.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »