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!