The Fortescue Metals Group Limited (ASX: FMG) share price is underperforming the BHP Group Ltd (ASX: BHP) share price. Why is this happening?
At the time of writing, the Fortescue share price is up 1.7%. But, the BHP share price has stormed higher and is up by around 4.7%.
Both of these businesses are huge iron ore miners. Only the ASX mining share Rio Tinto Limited (ASX: RIO) and the Brazilian company Vale are in the same league.
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Iron ore price decline
Fortescue and BHP are not exactly the same businesses with the same exposure to iron ore, so investors sometimes treat the Fortescue share price and the BHP share price differently day to day.
Fortescue's operations are almost entirely based on iron ore at the moment, with a growing green energy and green industry division called Fortescue Future Industries (FFI).
BHP's iron ore division makes up the dominant portion of its annual profit, but it also has other commodities that help earnings including petroleum (for now), copper, and nickel.
According to CommSec, the iron ore futures price fell by US$1.12, or 0.7%, to US$150.23 a tonne yesterday. CommSec said iron ore fell due to "China's battle to contain rising COVID-19 infections disrupted transportation in the country's important steel-making hub of Tangshan". China is the major buyer of Australian iron ore.
What next for the Fortescue share price?
One of the most recent broker ratings on Fortescue comes from Citi. The broker rates Fortescue as a sell, with a price target of just $16. That implies a decline of around 15% over the next 12 months.
The reason for the bearish price target is that the iron ore price is expected to fall to US$80 per tonne over the next couple of years.
