Key Points
- The Fortescue Metals share price is up 2.47% on the ASX today
- Fortescue shares are benefitting from higher iron ore prices, following heavy rain across Brazilian mining sites
- Omicron poses potential risk to demand side in China
The Fortescue Metals Group Limited (ASX: FMG) share price is continuing its rebound on Thursday.
At the time of writing, shares in the iron ore behemoth are swapping hands for $21.40, up 2.47%. For context, the S&P/ASX 200 Index (ASX: XJO) is 0.34% higher in afternoon trade.
The Fortescue share price is still a long way off its 52-week high of $26.58. The share price reached this level in late July when iron ore prices were touching record highs of US$220 per tonne.
Let's take a closer look at what could be behind the optimism for ASX-listed Fortescue today.
Bad weather constrains Brazil's iron ore supply
Like any other commodity, the price of iron ore is the product of a supply and demand equation. To the delight of Fortescue shareholders, the output of that equation is looking more favourable for suppliers today.
After retreating to nearly US$90 per tonne in November 2021, iron ore prices have sprung back to life. At present, the price of the steel-making commodity is fetching about US$131.60 per tonne. This places iron ore at a 3-month high — but what's behind this new momentum?
According to S&P Global, torrential rainfall across Minas Gerais in southeastern Brazil has disrupted iron ore mining operations. Moreover, miners — including iron ore giant Vale — have announced halts across their sites.
Considering Brazil is China's second-largest iron ore supplier, its production can have significant implications for the iron ore price.
The potential benefit to Fortescue has ASX investors bidding up the iron ore juggernaut today.
Notably, Fortescue's Pilbara-based mines are continuing their operations, which means the company can capture the higher commodity pricing.
However, commodity analysts are closely monitoring the other side of the pricing equation — demand. The Omicron COVID-19 variant could still impact demand for iron ore in China. Although, Mysteel Research & Consulting is forecasting China's demand to hold firmly.
Broker's take on Fortescue share price on the ASX
Recently, analysts over at Citi downgraded Fortescue based on its valuation. In a note, the broker placed a sell rating on Fortescue with a share price target of $17.20. This would suggest a potential downside of nearly 20%.
The Fortescue share price has performed strongly already this year. Fortescue shares are up 7.8% on a year-to-date basis.
