The BHP Group Ltd (ASX: BHP) share price, as you'd expect, is significantly impacted by the price of iron ore.
The industrial metal is responsible for roughly half of BHP's revenue, bringing in approximately as much as its copper and coal segments combined.
So, it should come as no surprise that the BHP share price rocketed to new record highs in July 2021, shortly after the iron ore price was trading north of US$215 per tonne.
BHP shares then retraced right alongside the iron ore price for the rest of the year as the metal fell to US$92 per tonne.
To round this off, iron ore charged back above US$161 by early April 2022, which saw the BHP share price leap to another near record of $53.17.
Today, iron ore is fetching US$94 per tonne. And BHP shares are trading for $38.54. (Though we should note that the S&P/ASX 200 Index (ASX: XJO) mining giant paid out almost $13 billion in final dividends in September.)
So, having established the link between the iron ore price and the performance of the BHP share price, what exactly is the government forecasting?
Why government forecasts could see the BHP share price under pressure
If you've had a gander over this week's Federal government budget, you may have noticed the iron ore price forecasts.
Government analysts predict the iron ore price will slide to US$55 per tonne (Free on Board (FOB) Australia) by the end of Q1 2023. That's a big drop from today's prices and could put some serious pressure on the BHP share price.
But not everyone agrees with the bearish assessment for iron ore spelled out in the budget.
In its Economic Insights report, Commonwealth Bank of Australia (ASX: CBA) said, "We think that the Government's forecasts for Australia's key mining and energy commodities in the coming years are broadly too conservative."
The report goes on to state:
The Budget's iron ore price forecast is lower than our outlook through the outlook period. The differences though lessen in later years. The difference reflects our view that prices will only gradually fall to $US60/t-$US65/t (FOB Australia) by late 2026/27 following a volatile year ahead.
Spot prices have come under pressure as China's property downturn weighs on demand. Policy in China remains the key driver of prices, particularly China's COVID-zero policy.
We broadly expect iron ore prices to bottom in Q1 2023 as China's COVID-zero policy continues to weigh on demand. A shift away from China's COVID-zero by the end of March 2023 should see iron ore prices lift in the following quarters.
If CBA has this one right, the BHP share price should follow iron ore higher in the latter quarters of 2023.
BHP share price snapshot
Atop the miner's healthy dividends, the BHP share price has marched 48% higher over the past five years. That handily outpaces the 16% gains posted by the ASX 200 over this same period.
