The Fortescue Metals Group Limited (ASX: FMG) share price is tracking higher today.
At the time of writing, the iron ore giant's shares are trading more than 2.4% higher at $17.41 apiece.
Meanwhile, the price of iron ore continues to trade down. The raw ingredient has now fallen more than 20% in the past month and 51% in the previous year of trade.
In broad market moves, the S&P/ASX 300 Metals and Mining index (ASX: XMM) is up 2% today after incurring heavy losses in July.
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Fortescue share price to face pressure, UBS says
Despite a year of soaring commodity prices, the price of iron ore has lagged and continues to weaken.
However, this isn't necessarily a bad thing for Fortescue, given its situation as the low-cost provider of iron ore within the global market.
Nevertheless, analysts at UBS have laid caution on the mining sector in a recent note. It reckons there could be a surprise to the downside for ASX mining shares this reporting season.
The UBS team note that higher all-in sustaining costs (AISCs) are likely to impact profits, while it tips several miners to miss their upgrades to production guidance.
It does tip the larger ASX miners to fare better than the small caps. However, this isn't enough of a mitigating factor to start buying mining stocks, the broker says.
Even though mining shares like Fortescue are relatively cheap, the Swiss investment bank said, it is still "not convinced they present enough value yet to encourage sector-wide buying".
Broker ratings signalling further trouble?
UBS is neutral on the Fortescue share price. It values the company at $16 per share, a shave of $1.41 off the current share price.
Just one broker – Barclay Pearce – rates Fortescue a buy right now, while 12 firms say it's currently a hold, per Refinitiv Eikon data.
Another five brokers urge their clients to sell Fortescue shares, while the consensus price target is $17.45 apiece, implying it could be fairly valued at its current trading price.
As to the price of iron ore looking ahead? According to Trading Economics:
Concerns about recurring COVID-19 outbreaks and low profitability at Chinese steel mills continued to overshadow reports of a massive stimulus package and previous policy support pledges from the world's biggest steel producer. On top of that, mounting fears about a potential global recession-driven demand downturn continued to hang over the [iron ore] market.
Yearly returns for both iron ore futures and the Fortescue share price are plotted on the chart below. In that time, the miner is down more than 31%.
